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Purpose Trusts and Quistclose Trusts - Essay Example

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The paper "Purpose Trusts and Quistclose Trusts" highlights that arrangements of the character for the payment of a person's creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors…
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Purpose Trusts and Quistclose Trusts
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Question One Daisy’s claim to the Dotcom shares, the house conveyed to Jack, the 15,000 pounds remaining on Jack’s savings account and the 40,000 pounds remaining in Mary’s trust fund largely depends upon Joe’s intentions upon creation of the various gifts. If his intentions were to create mere purpose trusts, once those purposes are completed and the trusts are dissolved the remaining assets will devolve to his estate and Daisy as sole heir thereto will take absolutely. The voluntary conveyance of the Gower coast home to Jack appears to be an absolute gift since there is no evidence that Joe retained a reversionary interest in the home.1 In Lohia v Lohia, it was established that by virtue of Section 60(3) of the Law of Property Act 1925, a resulting trust will no longer be inferred in the case of a voluntary conveyance.2 A declaration of trust can be created by word of mouth “or even inferred from conduct.”3 There were no words or conduct on Joe’s part that can be construed to represent an intention on his part to create a trust. The voluntary conveyance of the home will therefore be construed as an absolute gift to Jack which does not form a part of Joe’s estate and likewise Daisy will have no legitimate claim to it. The disposition of the shares in Dotcom plc to Eddie was a bare trust and as such will devolve with Joe’s estate. Eddie assumed the role of trustee and likewise treated Joe as the sole beneficiary of the trust during his lifetime. This is evidenced by Eddie leaving the share certificate with Joe and paying over dividends from the shares to Joe. Moreover, Eddie himself acknowledged that he was merely holding the shares upon trust for Joe. There is no escaping the conclusion that the manner in which the shares in Dotcom were purchased, held and treated was consistent with the requisite three certainties of a trust. These certainties are certainty of subject matter, intention as well as objects. The subject matter is the trust property, intention is words and conduct capable of defining the intent by the donor to create a trust and the objects are the intended beneficiaries.4 The presumption is that Daisy be the sole beneficiary of the shares in her role as heir to Joe’s estate. Joe’s gift to Jack for Emily’s medical problems appears to be a discretionary trust. However, the validity of this kind of discretionary trust can be challenged on the grounds that Joe’s words do not impose upon Jack a legally binding obligation. Rather, the words used most probably impose upon him no more than an honourable obligation. As explained by Norse J. in Re Cleaver, this difference determines whether or not a valid trust is created or not. If the words used impose an honourable duty there is no valid trust capable of enforcement.5 Despite this argument, one must remember that the binding affect of the words used will be construed by the courts with reference to the certainty of intention. In Tana & Anor V Tana & Anor, the Chancery Division found that “certainty of intention is in many ways the most”important’of the three certainties.6 Once the court is satisfied that the “declarant had the requisite intention it will strive to validate it.”7 Based on this precedent, it is very likely that Joe saying that he hoped that this money would help make Emily better will operate to convey his intention that a trust for the benefit of Emily’s medical care be created. Since only part of the trust fund was necessary for Emily’s care,the remaining funds will properly fall to Joe’s estate and revolve to Daisy. Exactly the same argument applies to Mary’s trust fund which was set up as an express purpose trust. The purpose for which the trust was established no longer exists once Mary died.8 As a result the trust disolves and the remaining funds will revert to the settler’s estate and Daisy will take the funds as sole benefiary. Question Two Typically the disposition of any interest in realty must be evidenced in writing. Section 52 of the Law of Property Act 1925 provides that: “…all conveyances of land, or any interest therein are void for the purposes of conveying or creating a legal estate unless made by deed.”9 Common sense dictates that this requirement is necessary since realty unlike perosnalty cannot be physically delivered. However, the law recognizes that other interests in property can be transferred in the absence of the execution of a deed of conveyance. This is the difficulty with the ruling in Lohia v Lohia which establishes the abrogation of a resulting trust in respect of a voluntary convenyance. There is good law that beneficial interests in realty can be disposed of outside of a written disposition of the same. Sir Christopher Slade said the following with regards to the disposition of a beneficial interest in circumstances where the same has not been disposed of by deed: “In the absence of any declaration of trust, the parties respective beneficial interests in the property fall to be determined not by reference to any broad concepts of justice, but by reference to the principles governing the creation or operation of resulting, implied or constructive trusts which by s 53(2) of the Law of Property Act 1925 are exempted from the general requirements of writing imposed by s 53(1).”10 The imposition of a constructive or resulting trust is primarily a judicial function. It involves the interpretation of facts and circumstances and whether or not an implied trust is an equitable remedy. A resulting trust is declared by reference to the conduct and common intent of the parties. Although not always clear, it can be created by indirect payments or by making improvements to the value and condition of the property of another. 11 Lord Diplock defined the circumstances in which a trust will be implied by operation of law. He said there is no real distinction between the concept of resulting, implied and constructive trusts. Trusts of this nature are: “…created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired. And he will be held to have so conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.”12 The court of equity acts as a court of conscience and as such will not strictly adhere to the notion that an executed deed adequately reflects the entire interest in the property, whether it is realty or personalty. It seems unlikely that the rule in Lohia v Lohia will survive in the wake of the courts’ long held position with regard to the imposition of resulting trusts in circumstances where it is equitable to do so. Question 3 The formation of a quitclose trust arose out of the decision of the House of Lords in Quistclose Investments Ltd. v Rolls Razor Ltd [1970] AC 567. In this case, a company made a loan upon condition that the proceeds of the loan be used for the payment of dividends already declared by the lending compnay. Holding that the arrangement represented a trust Lord Wilberforce stated: “That arrangements of this character for the payment of a persons creditors by a third person, give rise to a relationship of a fiduciary character or trust, in favour, as a primary trust, of the creditors, and secondarily, if the primary trust fails, of the third person, has been recognised in a series of cases over some 150 years.”13 3. “The Quistclose trust has held a fascination for trusts lawyers for over thirty years. For some, it is a modern enigma wrapped in a mystery. One problem of legal analysis is to identify the legal basis of the trust”. Bibliography Gissing v Gissing. [1971] AC 886 Huntingford v Hobbs [1993] 1 FLR 736 John McGhee. Snell’s Equity. Sweet & Maxwell. 2005 Law of Property Act 1925 Lohia v Lohia [2001] WTLR 101 Moffat, Graham. (2005) Trusts Law Text and Materias. Oxford University Press. Quistclose Investments Ltd. v Rolls Razor Ltd [1970] AC 567 Re Cleaver [1981] 1 WLR Smith, Roger. (2006) Property Law: Cases and Material. London: Longman. Tana & Anor v Tana & Anor [2001] EWHC Ch Read More
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