Limits of Equity in Ontario: Beneficiary Principle & Private Purpose Trusts, Exams of Law

Download Limits of Equity in Ontario: Beneficiary Principle & Private Purpose Trusts and more Exams Law in PDF only on Docsity! Trusts & Equity Fall Term 2019 Lecture Notes – No. 5 THE BENEFICIARY PRINCIPLE AND PRIVATE PURPOSE TRUSTS A general formulation of the ‘beneficiary principle’ is as follows: For there to be a valid trust there must be beneficiary (corporate or human) in whose favour performance of the trust may be decreed unless the trust falls within a group of exceptional anomalous cases when it is valid but unenforceable so that the trustee may perform it if they wish. Morice v Bishop of Durham (1804) 9 Ves 399, 405 is commonly cited as authority for the proposition: ‘… [e]very other [than charitable] trust must have a definite object. There must be somebody in whose favour the court can decree performance.’ Non-compliance with the beneficiary principle will generally invalidate a trust obligation. However, in Ontario, the court enjoys a statutory jurisdiction to recognize the failed trust as a power (and thus the trustee may utilize the power free from fear of liability for breach of trust) where the disposition is conceptually certain and specific enough to fall within the statute. Illustrations: Re Astor’s Settlement Trusts [1952] Ch 534 Here the settlor settled shares in the company which publishes The Observer newspaper, income to be used for protection of newspapers from combine control, preservation of journalistic integrity, etc. The trust failed as it was neither charitable nor did it have human beneficiaries. It was for general purposes, not people, and thus uncontrollable by the court as too nebulous. Per Roxburgh J: Let me, then, sum up the position so far. On the one side, there are LORD PARKER’S two propositions with which I began. These were not new, but merely re-echoed what SIR WILLIAM GRANT, M.R., had said in Morice v. Bishop of Durham as long ago as 1804: “There must be somebody, in whose favour the court can decree performance”. The position was recently re-stated by HARMAN, J., in Re Wood where he said ([1949] 1 All ER 1101): “a gift on trust must have a cestui que trust”, and this seems to be in accord with principle. On the other side is a group of cases relating to horses and dogs, graves and monuments—matters arising under wills and intimately connected with the deceased—in which the courts have found means of escape from these general propositions, and also Re Thompson and Re Price which I have endeavoured to 2 explain. Re Price belongs to another field. The rest may, I think, properly be regarded as anomalous and exceptional and in no way destructive of the proposition which traces descent from or through SIR WILLIAM GRANT, M.R., through LORD PARKER OF WADDINGTON, to HARMAN, J. Perhaps the late SIR ARTHUR UNDERHILL was right in suggesting that they may be concessions to human weakness or sentiment: see UNDERHILL’S LAW OF TRUSTS AND TRUSTEES, 8th ed., p. 79. They cannot, in my judgment, of themselves (and no other justification has been suggested to me) justify the conclusion that a court of equity will recognise as an equitable obligation affecting the income of large funds in the hands of trustees a direction to apply it in furtherance of enumerated non-charitable purposes in a manner which no court or department can control or enforce. I hold that the trusts here in question are void on the first of the grounds submitted by counsel for the trustees of the settlement of 1951 and counsel for the Attorney- General. Re Shaw [1957] 1 WLR 729 [This case illustrates well the defining difference between invalid private purpose trusts and valid public purpose trusts (or more conventionally, charitable trusts): public benefit.] George Bernard Shaw’s will gave funds in trust “(i) to ascertain by inquiry how much time could be saved by persons who speak and write the English language, by the substitution for the present English alphabet of a proposed British alphabet containing at least forty letters; to show the extent of the time and labour wasted by the use of the present alphabet; and, if possible, to show the loss of time in terms of loss of money; (ii) to transliterate one of the testator’s plays into the proposed British alphabet; to advertise and publish the transliteration with the original lettering opposite the transliteration, page by page; and to present copies thereof to public libraries, so as to persuade the government or the public to adopt the proposed alphabet.” It was held that the trust was invalid as charitable and not an exception to the beneficiary rule - the trusts were not within the category of charitable trusts for other purposes beneficial to the community, because the object of the research set out by the testator was to convince the public that the new alphabet would be beneficial, and, analogously to the cases of trusts for political purposes advocating a change in the law of the land, the court was not in a position to judge whether the adoption of the new alphabet in fact would be beneficial. Re Endacott [1960] Ch 232 A testator gave by will his residuary estate “to North Tawton Devon Parish Council for the purpose of providing some useful memorial to myself.” It was held that the gift was not a good charitable gift and failed for uncertainty on the following grounds: (i) the words “for the purpose of providing some useful memorial to myself” were not merely expository, but were intended to impose an obligation in the 5 purpose trusts that Scott sees a requirement that it be definite. (2 Scott on Trusts, Third Edition, p. 937). Here the purposes of the power were held insufficiently specific given the various goals of the Society. It seems a rather harsh application of the test which muddies specificity of intent with conceptual certainty of a class of objects. ‘Gifts To Unincorporated Associations’ An unincorporated association has no legal personality; it cannot hold property. Can it be the beneficiary of a trust where a trustee is given money for its use or benefit? In Conservative Central Office v Burrell [1980] 3 All ER 42 (Ch), it was held that an “unincorporated association” is one which cannot itself own property as it has no legal personality (thus its money is controlled by leading members who hold it on bare trust for all members), but has the following features: (i) 2 or more persons joined together for a common purpose; (ii) mutual rights and duties arising from a contract between members; (iii) rules determine who controls (and on what terms) the association and its money; (iv) members can join or leave the association at will. Who is the beneficiary of the gift – the association or its past and/or present members? The basic rule was given in Re Recher's Will Trusts [1972] Ch 526; National Westminster Bank Ltd. v National Anti-Vivisection Society Ltd, [1972] Ch 526, 539 per Brightman J: In the absence of words which purport to impose a trust, the legacy is a gift to the members beneficially, not as joint tenants or as tenants in common so as to entitle each member to an immediate distributive share, but as an accretion to the funds which are the subject-matter of the contract which the members have made inter se. Thus, the contract will govern and only those that are subject to the contract (i.e. current members) are affected. What is the nature of the gift? In Re Denley [1969] 1 Ch 373 Goff J held: … where, then, the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, it seems to me that it is in general outside the mischief of the beneficiary principle. There are 4 possibilities in construing the facts: 6 there is an absolute gift to the members of the association (Leahy), and any member may claim his share provided that this is what the donor intended. A trust exists for present members, either jointly or separately; A trust exists for present and future members (thus an endowment); No endowment trust but rather a gift to the present members beneficially as an accretion to the association’s property to be dealt with according to the rules of the association by which the members are contractually bound; Re Lipinski [1976] Ch 235. The fourth option above is the modern approach. Re Lipinski’s Will Trusts [1976] Ch 235 The testator bequeathed half of his residuary estate to trustees on trust for the ‘Hull Judeans (Maccabi) Association’ in memory of his late wife to be used solely in constructing and improving the new buildings for the association. One half (that is, a one-quarter share of the residuary estate) was to be held for a school and the other half was to be held for the ‘Hull Hebrew Board of Guardians’ to be used solely in constructing and improving the new buildings for the association. By the time of the testator’s death, the association had acquired its own premises. Based on Re Denley, it was held by Oliver J. that: … whether a gift was treated as a purpose trust or an absolute gift to an unincorporated non-charitable body with a superadded direction, the gift was valid if the beneficiaries were ascertainable; that the specified purpose of the gift to the Hull Judeans was within the power of that association and its members were the ascertained or ascertainable beneficiaries and, accordingly, the association's members were the persons who were entitled to enforce that purpose or, notwithstanding the use of "solely," to vary that purpose. Thus the contract ruled as to entitlement and use. What happens when the association is wound up or otherwise dissolves? The old rule was to divide the assets on dissolution amongst the membership according to their subscriptions or contributions; that approach is no longer followed. Now the matter is primarily on one of contract. Hanchett-Stamford v AG [2008] EWHC 330 (Ch) The plaintiff was the sole surviving member of the Performing and Captive Animals Defence League and as such entitled to the league’s assets. Per Lewison J: 28 Unincorporated associations do not have separate legal personalities. Almost 7 all the myriad legal problems to which they give rise stem from this… 29 … In In re Recher's Will Trusts [1972] Ch 526 Brightman J adopted this three-fold classification; as did Lawrence Collins J in Hunt v McLaren [2006] WTLR 1817. In Recher's case Brightman J also pointed out that it would be absurd to suppose that a donor or testator intended that, as soon as a gift to such an unincorporated association had been made, any member of the association became entitled as of right to demand an aliquot share of the gift. I respectfully agree. In my judgment under normal circumstances a gift to an unincorporated association will fall into the second of Cross J's categories. It is, in Brightman J's words [1972] Ch 526, 539: "an accretion to the funds which are the subject matter of the contract which such members have made inter se, and falls to be dealt with in precisely the same way as the funds which the members themselves have subscribed." He added, at p 539, that in the absence of words which purport to impose a trust: "the legacy is a gift to the members beneficially, not as joint tenants or as tenants in common so as to entitle each member to an immediate distributive share, but as an accretion to the funds which are the subject matter of the contract which the members have made inter se." 30 In In re Bucks Constabulary Widows' and Orphans' Fund Friendly Society (No 2) [1979] 1 WLR 936, 941 Walton J characteristically described this as "quite elementary". 31 It follows, in my judgment, that the members for the time being of an unincorporated association are beneficially entitled to "its" assets, subject to the contractual arrangements between them. This was also Lawrence Collins J's conclusion in Hunt v McLaren [2006] WTLR 1817, para 113. It is important to stress that this is a form of beneficial ownership; that is to say that in some sense the property belongs to the members. Megarry & Wade, The Law of Real Property,6th ed (2000), para 9-095 accuses the courts of having developed "a new form of property holding by unincorporated associations" in order to escape from technical difficulties of the classic models of joint tenancies and tenancies in common. I do not think that the courts have purported to do so, and in view of the proviso to section 4(1) of the Law of Property Act 1925 it is difficult to see how they lawfully could, at least in relation to land. So the "ownership" of assets by an unincorporated association must, somehow, fit into accepted structures of property ownership. 32 In In re Recher's Will Trusts [1972] Ch 526, 539 Brightman J pointed out: "Just as the two parties to a bi-partite bargain can vary or terminate their contract by mutual assent, so it must follow that the life members, ordinary members and associate members of the London & Provincial society could, at any moment of