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Equity and trustsRobert ChambersJames PennerWilliam Swadling

This guide was prepared for the University of London International Programmes by:uuProfessor Robert Chambers, BEd, LLB (Alberta), DPhil (Oxon), Professor of PropertyLaw, University College London.Drawing on previous guides by:uuWilliam Swadling, MA (Oxon), LLM (London), Reader in the Law of Property at theUniversity of Oxford and Senior Law Fellow at Brasenose College.uuJames Penner, BSc (UWO), LLB (Toronto), DPhil (Oxon), Barrister (Lincoln’s Inn),Professor at the National University of Singapore.This is one of a series of subject guides published by the University. We regret thatowing to pressure of work the authors are unable to enter into any correspondencerelating to, or arising from, the guide.If you have any comments on this subject guide, favourable or unfavourable, pleaseuse the form at the back of this guide.University of London International ProgrammesPublications OfficeStewart House32 Russell SquareLondon WC1B 5DNUnited Kingdomwww.londoninternational.ac.ukPublished by: University of London University of London 2015The University of London asserts copyright over all material in this subject guideexcept where otherwise indicated. All rights reserved. No part of this work maybe reproduced in any form, or by any means, without permission in writing fromthe publisher. We make every effort to respect copyright. If you think we haveinadvertently used your copyright material, please let us know.

Equity and trustspage iContents1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1Trusts: a difficult subject? . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.2Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.3Learning outcomes, self-assessment questions and activities . . . . . . . . . 51.4Advice on the examination . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Trusts – the basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.1What is a trust? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92.2Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112.3Comparison with other legal concepts . . . . . . . . . . . . . . . . . . . . 13Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 Types of trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183.1Express trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .193.2Discretionary, fixed and bare trusts . . . . . . . . . . . . . . . . . . . . .193.3The protective trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213.4Trusts arising by operation of law . . . . . . . . . . . . . . . . . . . . . .223.5Resulting trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .243.6Testamentary and inter vivos trusts . . . . . . . . . . . . . . . . . . . . . . 253.7Purpose trusts: private and public (charitable) purpose trusts . . . . . . . . 25Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284 The express trust relationship . . . . . . . . . . . . . . . . . . . . . . 29Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304.1Introduction to rights and duties . . . . . . . . . . . . . . . . . . . . . .314.2Powers and duties of trustees and others . . . . . . . . . . . . . . . . . .334.3Typical administrative powers and duties . . . . . . . . . . . . . . . . . . 374.4Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4.5Power of delegation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 404.6Interests of beneficiaries and objects of powers . . . . . . . . . . . . . . . 4137Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465 Creating express trusts I: the declaration of trust . . . . . . . . . . . . 47Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 485.1Intention to create a trust . . . . . . . . . . . . . . . . . . . . . . . . . . 495.2Identifying the rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 525.3Identifying the beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . 54Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 606 Creating express trusts II: constitution . . . . . . . . . . . . . . . . . . 61Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 626.1Constituting a trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.2Defective constitution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6463Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

page iiUniversity of London International Programmes7 Proving declarations of trust and effecting dispositions of a beneficiary’sinterest under a trust . . . . . . . . . . . . . . . . . . . . . . . . . . 71Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 727.1Proving a declaration of trust . . . . . . . . . . . . . . . . . . . . . . . .737.2Transfer of equitable interests . . . . . . . . . . . . . . . . . . . . . . . . 76Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 808 Secret trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 828.1Will formalities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .838.2Justifications for the admission of evidence of secret trusts . . . . . . . . .8.3Some specific issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878.4What type of trust is ultimately enforced . . . . . . . . . . . . . . . . . .8589Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929 Promises to create trusts . . . . . . . . . . . . . . . . . . . . . . . . . 93Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 949.1Promises in deeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 959.2Promises for consideration . . . . . . . . . . . . . . . . . . . . . . . . . . 989.3Promises and detrimental reliance . . . . . . . . . . . . . . . . . . . . . . 99Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10210 Purpose trusts I: public purposes . . . . . . . . . . . . . . . . . . . . 103Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10410.1 Charitable status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10510.2 The meaning of ‘charity’ . . . . . . . . . . . . . . . . . . . . . . . . . . 10610.3 The public benefit requirement . . . . . . . . . . . . . . . . . . . . . .11110.4 Contaminating non-charitable elements . . . . . . . . . . . . . . . . . . 11310.5 Failure of charitable trusts: the cy‑près doctrine . . . . . . . . . . . . . .113Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11811 Purpose trusts II: private purposes . . . . . . . . . . . . . . . . . . . 119Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12011.1 Objections to private purpose trusts . . . . . . . . . . . . . . . . . . . . 12111.2 The ‘beneficiary principle’ and the ‘no purpose trust’ rule . . . . . . . . .12211.3 Trusts for persons limited by a purpose . . . . . . . . . . . . . . . . . . . 12411.4 Anomalous valid private purpose trusts . . . . . . . . . . . . . . . . . .12511.5 Departures from the beneficiary principle . . . . . . . . . . . . . . . . . 126Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12812 Resulting trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13012.1 When do resulting trusts arise? . . . . . . . . . . . . . . . . . . . . . . . 13112.2 Why do resulting trusts arise? . . . . . . . . . . . . . . . . . . . . . . .135Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14013 Rights ‘held’ by unincorporated associations . . . . . . . . . . . . . 141Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14213.1 Gifts and other transfers to unincorporated associations . . . . . . . . . . 14313.2 The distribution of rights upon dissolution . . . . . . . . . . . . . . . . . 145Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150

Equity and trustspage iii14 Appointment, retirement and removal of trustees . . . . . . . . . . . 151Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15214.1 The appointment, retirement and removal of trustees in outline . . . . . . 15314.2 Powers in the trust instrument . . . . . . . . . . . . . . . . . . . . . . . 15414.3 Powers under ss.36 and 39 of the Trustee Act 1925 . . . . . . . . . . . . . 15414.4 Powers under s.19 of the Trusts of Land and Appointment ofTrustees Act 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15514.5 The statutory and inherent jurisdiction of the court . . . . . . . . . . . .15614.6 The vesting of the trust rights upon a change of trustee(s) . . . . . . . . . 157Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16015 Variation of trusts . . . . . . . . . . . . . . . . . . . . . . . . . . . 161Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16215.1 The principle in Saunders v Vautier . . . . . . . . . . . . . . . . . . . . .16315.2 The grant of administrative powers: Trustee Act 1925, s.57 . . . . . . . . . 16415.3 The variation of beneficial interests: Variation of Trusts Act 1958 . . . . . . 164Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16816 Breach of trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17016.1 Liability of a trustee for breach of trust . . . . . . . . . . . . . . . . . . . 17116.2 Personal liability of a trustee for breach of trust . . . . . . . . . . . . . . 17216.3 Liability of trustees inter se . . . . . . . . . . . . . . . . . . . . . . . . . 17516.4 Liability of third parties . . . . . . . . . . . . . . . . . . . . . . . . . .17716.5 Dishonest assistance (accessory liability) . . . . . . . . . . . . . . . . . . 17816.6 Recipient liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18617 Breach of fiduciary duty . . . . . . . . . . . . . . . . . . . . . . . . 187Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18817.1 Fiduciary obligations and ‘conflict of interests’ . . . . . . . . . . . . . . . 18917.2 The ‘no conflict’ rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19017.3 The ‘no unauthorised profits’ rule . . . . . . . . . . . . . . . . . . . . .19117.4 The ‘self-dealing’ rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19117.5 The ‘fair-dealing’ rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19217.6 Equitable compensation for breach of fiduciary obligation . . . . . . . . . 19317.7 The uncertain application of trustee exemption clauses . . . . . . . . . . 194Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19718 Constructive trusts I . . . . . . . . . . . . . . . . . . . . . . . . . . 199Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20018.1 Genuine constructive trusts . . . . . . . . . . . . . . . . . . . . . . . .20118.2 False constructive trusts . . . . . . . . . . . . . . . . . . . . . . . . . . 20118.3 Types of constructive trust . . . . . . . . . . . . . . . . . . . . . . . . . 20218.4 Making sense of constructive trusts . . . . . . . . . . . . . . . . . . . .20318.5 Constructive trusts which respond to wrongdoing . . . . . . . . . . . . . 203Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207

page ivUniversity of London International Programmes19 Constructive trusts II . . . . . . . . . . . . . . . . . . . . . . . . . . 209Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21019.1 Constructive trusts as a response to unjust enrichment . . . . . . . . . .21119.2 Constructive trusts responding to other miscellaneous events . . . . . . . 212Reflect and review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221Feedback to activities . . . . . . . . . . . . . . . . . . . . . . . . . 223Chapter 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .225Chapter 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .225Chapter 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .226Chapter 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .228Chapter 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .229Chapter 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .230Chapter 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .230Chapter 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .231Chapter 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232Chapter 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234Chapter 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 234Chapter 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235Chapter 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236Chapter 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237Chapter 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237Chapter 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240Chapter 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 241Chapter 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242

1IntroductionContentsIntroduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.1Trusts: a difficult subject? . . . . . . . . . . . . . . . . . . . . . . . . .31.2Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41.3Learning outcomes, self-assessment questions and activities . . . . . . .51.4Advice on the examination . . . . . . . . . . . . . . . . . . . . . . . .6

page 2University of London International ProgrammesIntroductionThe purpose of this subject guide is to help you study the law of equity and trusts.Working through this guide, you will gain an understanding of the subject sufficientto do well in the final examination. This is not, however, a matter of rote learning.Each chapter will introduce and take you through a programme of study, but it willnot simply ‘give you the answers’ to be memorised for later regurgitation in theexamination. Only by taking seriously the various instructions as to reading andanswering questions will you attain the necessary grasp of the subject.Learning outcomesBy the end of this chapter you should be able to:uuappreciate why the law of trusts is considered to be a difficult subjectuuidentify the necessary sources of reading for studying this subject.

Equity and trusts 1 Introduction1.1 Trusts: a difficult subject?The law of trusts is generally acknowledged to be one of the more difficult subjectsin the LLB syllabus. This is mainly because of the nature of the trust which containselements both of the law of obligations and of the law of property. In some ways,trusts are like

Equity and trusts 1 Introduction page 3 1.1 Trusts: a difficult subject? The law of trusts is generally acknowledged to be one of the more difficult subjects in the LLB syllabus. This is mainly because of the nature of the trust which contains elements both of the law of obligations and of the law of property. In some ways,

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DEGREE COURSE: DATE OF BIRTH: FOR TEST SUPERVISORS USE ONLY: [ ] Tick here if special arrangements were made for the test. Please either include details of special provisions made for the test and the reasons for these in the space below or securely attach to the test script a letter with the details. Signature of Invigilator FOR OFFICE USE ONLY: Q1 Q2 Q3 Q4 Q5 Q6 Q7 Total. 1. For ALL .