Equity and Trust Law UK: Details of the Beneficiary Principle (Research Paper Sample)

Equity and Trust Law UK
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Contents TOC \o "1-3" \h \z \u Introduction PAGEREF _Toc438286514 \h 3Details of the Beneficiary Principle PAGEREF _Toc438286515 \h 3Private Purpose Trusts are Uncertain PAGEREF _Toc438286516 \h 5The Perpetuity Rule PAGEREF _Toc438286517 \h 6Public Policy PAGEREF _Toc438286518 \h 7Exceptions of the Beneficiary Principle PAGEREF _Toc438286519 \h 8Conclusion PAGEREF _Toc438286520 \h 9
Introduction
The trust laws in England and Wales are based on a beneficiary principle that limits the flexibility of the law with regards to private purpose trusts. It is critical that the beneficiary principle was made by Sir William Grant in Morice v Bishop of Durham in 1804. Further, it is important to state the beneficiary principle because it lays the foundation for the upcoming discussion. It follows that the beneficiary principle argues that a trust possession ought to be seized on trust for acknowledged objects or beneficiaries, which is similar to the three uncertainties that will be mentioned in the course of this paper.[(1804) 9 Ves 399] [Richard Edwards and Nigel Stockwell, Trust and Equity (10th ed Longman 2011)]
It should be noted that this paper argues that the beneficiary principle has hampered the development of trusts law in England and Wales for over two centuries; it is too rigid and enforced far too strictly. Until the rules surrounding it are relaxed then there cannot be any flexibility with respect to private purpose trusts in this jurisdiction. In order to achieve the objective mentioned before, this paper reflects on the details of the beneficiary principle, the relationship between private purpose trusts and the beneficiary principle before giving examples of how courts have interpreted the principle.
Details of the Beneficiary Principle
It is notable that in the beneficiary principle has two versions, which are the strong version and the weak version. According to the strong version, the principle states that a non-charitable trust is inexistent unless there are individuals with beneficial interests in a trust property. Critical to the discussion is the fact that Lord Parker endorsed this version in a case involving Bowman v Secular Society Ltd by asserting that a trust must involve beneficial individuals. Analogously, the weak version of the beneficiary principle states that a non-charitable trust is inexistent in the absence of someone with the authority to exercise obligations of the trustee. It is notable that the strong version of the beneficiary principle is evident in a case that involved Morice v Bishop of Durham (1804) where Sir William Grant stated that: "There can be no trust, over the exercise of which this Court will not assume a control; for an uncontrollable power of disposition would be ownership, and not trust… Every…trust [other than a trust for charity] must have a definite object. There must be somebody, in whose favour the Court can decree performance.”[Bowman v Secular Society [1917] AC 406 (HL)] [Alastair Hudson, Equity and Trust (7th ed Routledge 2013)] [(1804) 9 Ves 399] [Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, 2009) 235 at 238-239]
From the two versions of the beneficiary principle, it is evident that two main ideas emerge from the principle. The first idea is that trustees are only responsible for the presence of beneficiaries who can ascertain that the trustees perform their duties. The second idea is that beneficiaries must have proprietary rights in trust properties. This owes to the reality that such a right gives the beneficiary a foundation to petition in court in case trustees fail in their duties. Critical to the discussion is the fact that beneficiaries earned the right to petition against trustees after a case involving Saunders v. Vautier (1841). It owes to the reality that the rule in the case mentioned above permits beneficiaries of a trust to terminate the trust prematurely. In such a case the trustees are always required to transfer the legal title of the trust property to the beneficiaries. However, it is crucial to note that the Saunders v. Vautier mostly applies when the beneficiary to a trust is a single individual. In short, the beneficiary principle provides room for beneficiaries to petition the terms of the trust in court.[(1841) 4 Beav 115] [(1841) 4 Beav 115] [Oakley Trends in Contemporary Trust Law (Clarendon Press, 1996) 1 at 1]
From the literature above, it could be deduced that beneficiaries are the only ones capable of enforcing a trust after the trust has been created properly. Therefore, it could be argued that a trust for a non-charitable purpose, which is different from a trust for individuals, could be void because such a trust has no definite beneficiaries. It owes to the reality that a non-charitable trust has objects as beneficiaries, yet objects cannot complain before a court of law. Simply put, non-charitable trusts could be invalid because they lack engines (beneficiaries) that direct them. As evidence, courts have ruled on cases of trusts based on the presence or absence of beneficiaries. For instance, Roxburg J held that non-charitable trusts that lack beneficiaries were not enforceable in Re Astor’s Settlement. Further, Lord Evershed stated "no principle perhaps has a greater authority behind the generational position than a trust not being a charitable trust, in other to be effective, must be have ascertained or ascertainable beneficiaries" in a case involving Re Endacott. This indicates that beneficiaries are rudimental in the trust laws of England and Wales.[Flannigan "The Core Nature and Fiduciary Accountability" (2009) NZ Law Review 375 at 395-397.136] [[1952] Ch 534] [[1959] 3 All ER 562]
Reasons behind the Beneficiary Principle
It is important to note that private purpose trusts are not for the purpose of ascertainable beneficiaries and are often defined as trusts with abstract purposes. As evident in publications, private purpose trusts are invalid under the English and Wales law because such trusts lack beneficiaries who can push trustees to implement their obligations before a court of law. Perhaps it is why the beneficiary principle was implemented because the condition mentioned above ensures that trustees remain accountable. Critical to the discussion is the fact that the beneficiary principle exists because of three main reasons, which are also known as the three uncertainties and act as an obstacle to private purpose trusts.[John Glasson (ed) The International Trust (Jordan Publishing Ltd, 2002) 597 at 602]
Private Purpose Trusts are Uncertain
The first reason explaining the existence of the beneficiary principle is the fact that private purpose trusts are uncertain. This owes to the reality that the law of trusts defines trustees as the legal owners of a trust property implying failure to control trustees could make them act unconscionably and ignore their obligations. It follows that courts must understand the nature of trust obligations because failure to understand trustee obligations would make it difficult to control trustees, which explains the rationale behind the need for certainty of objects or beneficiaries. In fact, Hayton asserts that trust is a duty that requires trustees to be accountable to beneficiaries of a trust. Therefore, it could be construed that the presence of beneficiaries in a trust makes trustees accountable, which in turn prevents trustees from acting unconscionably. As evidence, Lord Eldon acknowledged the decision in Morice v Bishop of Durham by explaining that the beneficiary principle exists to prevent the mismanagement of trusts by trustees.[Wilson and Angelo Forte (eds) Gloag and Henderson The Law of Scotland at 814-816] [David Hayton, ‘Developing the Obligation Characteristic of a Trust’ [2001] LQR 96] [Morice v Bishop of Durham (1804) 9 Ves 399 (Sir William Grant M.R)]
It is notable that this reason for the existence of the beneficiary principle has been applied in several court cases. For example, in Re Endacott the testator left a trust "for the purpose of providing useful memorial to myself." On the contrary, the court refused to uphold the trust because it was unknown what "some useful memorial to myself" meant. Analogously, the same concept was applied in the Re Astor Settlement Trust where Roxburg J argued that the purpose declared in the trust was vague. This owes to the reality that the terms of the trust had a purpose of "maintenances....of good understanding between nations, preservation of integrity between newspapers from being absorbed or controlled by combines." As a result, Roxburg J declared the purpose of the trust to be vague because the terms of the trust did not define how the income was to be divided. Clearly, the two examples of court cases indicate that the terms of the trust must be stated clearly. It owes to the reality that clarified terms of a trust enable the court to control trustees, which in turn ensures that trustees perform their duties.[[1959] 3 All ER 562 13] [Pawlowski & Summers, ‘Private Purpose Trust- A Reform Proposal’ [2007] COVPL 148] [[1952] Ch 534] [Langbein "The Contractarian Basis of the Law of Trusts" (1995) 105 Yale LJ 625 at 627] [Waters, Donovan W.M "The Trust in a Changed and Yet Changing World" (2008) JTCP 205.]
The Perpetuity Rule
It is notable that a trust may continue in existence in perpetuity. It is also crucial to note that there are two perpetuity rules, which include the rules against re-alienation and the remoteness of the vesting rule. The remoteness in the vesting rule requires that any trust property ought to have a definite time implying that if the vesting does not occur within the period, the trust may be deemed void. Critical to the discussion is the fact that the remoteness i...