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Justin Santiago, BAppSc (Hons), MBA, LLB (Hons) comes from a journalism, market research, intellectual property and strategic communications consulting background. Now based in Melbourne he spends his time advising businesses on how to communicate to their customers as well as writing on various subjects of interest in this blog.

Friday, March 6, 2009

Private Purpose Trusts and Unincorporated Associations

No principle has perhaps greater sanction of authority behind it than the general proposition that a trust by English law, not being a charitable trust, in order to be effective, must have ascertained beneficiaries – per Lord Evershed MR in re Endacott. How accurately does this statement represent the present law relating to the dedication of property to private purposes? - Justin Santiago

The requirement of ascertained beneficiaries fulfills one the certainty objects test and thus would go towards validating the trust. A private purpose trust fails to indicate an individual or individuals or a clear class of individuals who will benefit if it is carried out. For example re Astor – a trust for inter alia the establishment, maintenance and improvement of good understanding, sympathy and co-operation between nations was held void.

The rationale is that such trusts lack enforceability against the trustees and flouts the beneficiary principle inherent in all trusts. The beneficiary principle requires that all trusts be made for the benefit of human beneficiaries who will be able to apply to the court to enforce the trust : Morice v Bishop of Durham – the court can neither reform maladministration nor direct a due administration. The principle is also framed as the ‘no purpose trust’ rule and that with the exception of charitable trusts, nearly all trusts for a purpose are void : re Endacott – a testamentary trust for the purpose of providing some good useful memorial to myself failed for want of a human beneficiary

The beneficiary principle can be viewed as a rights principle or an enforcer principle. If there are no persons with rights against the trustee then there is no trust. It also follows that if there is no one with the ability to enforce the trust then there is also no trust. The law of trusts are devices of private law and for a private law to have any legal effect it must actually confer rights or create enforceable duties. Dedicating rights to a purpose does neither.

A number of purpose trusts have been upheld despite infringing the beneficiary principle, and also despite infringing the rule against perpetuities :-

1.Reasonable provision for tombs and monuments provided it was specifically to erect a physical structure

2.The upkeep of animals : re Dean with the rationale that the courts were sympathetic with the specific motive of the testator and it was unclear whether the trust was for the animal per se or to a person who helped to look after the animals : Pettingall v Pettingall – under such situations the trustee or executor of the will undertakes to carry out the purpose of the trust – “Petingall” order

3.Religious services to the extent that these are not charitable in advancement of religion : Bourne v Keane, re Hetherington – the element of community benefit.

The rationale to allow these private purpose trusts was that the purposes were beneficial and it was reasonably possible to execute through a Pettingall order which would be issued by the courts under which the trustee or executor of the will undertakes to carry out the purpose.

With regard to a gift to an unincorporated association which is a group of individuals who combine to act together to achieve some purpose, often social. Because the society is not incorporated, unlike a limited company, it has no legal personality in itself and so cannot hold rights in the way that a corporation can. Unlike a corporation, an unincorporated association has no rights or duties separate from those undertaken by its individual members. Contrast this with, for example, a limitedCompany, which is an corporation and has a distict legal personality. A limited company can sue and be sued in its own name, and enter into contracts.

Because it is not a legal entity, individual members of an association are responsible for their actions, even if carried out on behalf of the association.
However, if an association appoints a committee to act on its behalf, that committee may be jointly liable for the actions of one of its members. In addition, in legal proceedings an association may appoint someone to represent the association, and that appointment will normally be accepted by the courts.

Gifts to or in trust for unincorporated associations, excluding charities, create difficulties in terms of ownership of the property and enforceability of the trust.
The validity of gifts to unincorporated associations varies with the construction that the court may place on the gift. The approach of the court was summarised by Cross J in Neville Estates Ltd v Madden [1962] Ch 832, in three propositions.

Cross J. “In the first place, it may, on its true construction, be a gift to the members of the association at the relevant date as joint tenants, so that any member can sever his share and claim it whether or not he continues to be a member of the association – this however may not however be the intention of the donor - Leahy v AG for New South Wales – as a non charitable gift, the trust failed as the testator’s intentions was clearly to create an endowment for the order of nuns (both present and future) and not for the benefit of ndividuals.

Secondly, it may be a gift to the existing members not as joint tenants. A member cannot sever his share, it would accrue to other members on his death or resignation, even though other members could seek to restrain him by injunction or seek to restrain him by injunction or proceed against him for breach of contract. This approach is to resort to contractual notions rather than the device of the trust based on the duties and obligations between members and the association which amount to contractual obligations. According to Conservative Central Office v Burrell 1982, the members of the association must have mutual obligations to one another, which suggests that there is some form of contractual relationship between them. the members are bound by the contractual relationship between them to use the property to the associations's purposes. As such the gifts and other transfers to such associations are construed as being transfers to the members themselves but subject to their contractual obligations between themselves to use the rights so given to promote the purposes of the association : re Lipinski’s Will Trusts : a purpose that is within the powers of the association and of which the members of the association are beneficiaries should not fail.

Thirdly, the terms or circumstances of the gift or the rules of the association may show that the property in question is not to be at the disposal of the members for the time being, but is to be held in trust for or applied for the purposes of the association as a quasi-corporate entity. Since an unincorporated association promotes a purpose, a gift to such an association in one sense may not be enforced because there is no person (donee) capable of giving a valid receipt for the property or it may be difficult to identify a person who is capable of enforcing the trust : Re Astor. Such an approach is disastrous for the transferor because it would generally invalidate the transfer as a private purpose trust, unless the purposes were exclusively charitable or of a type falling under the principle enunciated in re Denley’s Trust Deed .

In this case, a trust for the maintenance of a sports ground (a purpose) for use by the employees of a company was valid on the ground that the purpose was not of such an abstract kind as to fall foul of the beneficiary principle and the employees had locus standi to ensure that the trustees put the purpose into effect. There are however views that suggest that this was merely a form of a trust for persons with the purpose being treated as merely a superadded direction or motive for the gift.

Alternatively a gift to an association can be seen as a mandate to an officer of the association to disburse the gift in a particular way. As mandates are (by definition) revocable when initially created, there must be some point at which the mandate to the association becomes irrevocable. The most logical view seems to be that this takes place when the property of the gift is disbursed.

Re Horley Town Football Club; Hunt v McLaren [2006] - In 1948 Major Jennings, the president of Horley Football Club (the Club) settled land by deed on trust to secure a permanent sports ground for the Club. In May 2002 the land was sold to a developer for almost £4m. The trustees used the proceeds to purchase another site for £850,000 and to construct a Club house and ancillary facilities amounting to approximately £2.2m. This new sports complex was subject to certain restrictive covenants which limited its use to sports and leisure. As a consequence the land was worth less than the amount spent on it. The rules of the Club made provisions for several varieties of membership ranging from the current full members to temporary and associate members. The claimants (trustees) applied to the court for directions concerning the basis on which they held the assets of the Club and the proper construction of the rules of the Club.

The High Court decided as follows:

(a) a gift to or in trust for an unincorporated association might take effect as a gift to the existing members, not as joint tenants, but subject to their respective contractual rights and liabilities towards each other as members of the association. In this event the member could not sever his share and it would accrue to the other members on his death or resignation. Such members include persons who became members after the gift took effect.

(b) The deed of 1948 was construed as a gift to the members of the Club as a contract-holding gift to the Club and its members including subsequent members. On this construction, the gift will fail if it is not limited in perpetuity

(c) The beneficial ownership of the assets of the Club was in the subsisting full members, but not the temporary and associate members. The trustees of the Club held the assets on bare trust for the full members

(d) The members acquired the assets of the Club subject to the current rules and could unanimously or by a general meeting call for the assets to be transferred.

Disbursal of assets of the dissolution of the association

In the present case, Collins J. after considering the principles in the above mentioned cases decided that the trust deed will be construed as a gift to the Club as a ‘contract-holding’ gift to the Club and its members. He also decided that the beneficial ownership of the assets of the Club was vested in the current full members of the Club on a bare trust. In addition, a clause will be implied into the rules of the Club to the effect that the surplus funds of the club on a dissolution should be divided amongst its members at the time of dissolution on a per capita basis, irrespective of the length of membership or subscriptions paid.

A common problem concerning unincorporated associations is the distribution of their assets when they are dissolved. Where the assets are contributed by the individual members the problem is not particularly acute, but there are particular difficulties where the assets are funds that have been raised by public subscription : Re West Sussex Constabulary Widows Fund 1971. The prevailing view is that there is no obligation to return these funds to their contributors, but in Air Jamaica v Charlton 1999 Lord Millet stated that such a return should be effected where the number of contributors was small and readily ascertainable.

15 comments:

  1. Thanks dude, after reading from textbooks and other articles you've cleared it up the slight confusion in my head.

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  2. I don't know why u do this but it brilliant! makes the subject understandable!
    Gawd bless you!

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  3. really helpful thanks, do u have any more law related blogs

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  4. Thanks a million. This has really helped me in the preparation of my Equity and Trust exams. Hope you continue to post usful infortion such as this to help our understanding of the law.

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  5. yeah thnk you so much....of great help.

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  6. thanks! much clearer to me now.

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  7. Thanks. I am doing an assignment and this has helped a great deal.

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  8. I needed to understand why private purpose trusts are burdensome and anomalous. I now understand. Thanks

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  9. considering the money forked out on books and actual education, after going round in circles, this as clarified a significant number of points. Thank you, left wondering why I spent so much time and money just to become confused really.

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  10. thanx a lot. what a star

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  11. thanks this is absolutely brilliant

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  12. preparing for 2014 exams and this has been of great help to me, thanks a lot

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