How much can I take and use?

While working as an engineer in a factory I learnt a certain technique. I improved on the technique and left the company and went out and set up an engineering company selling machinery that utilised that improvised technique. Can I do that? 

The area of law is called breach of confidence which has developed through common law and equity and deals with an obligation of confidence by parties in a certain relationship who have a responsibility not to disclose or use confidential information.

There are three important points that need to be discussed in order to ascertain whether the engineer has committed a breach of confidence.  Following Coco v Clark, it is important to determine whether information about the technique has the necessary quality of confidence which is determined by several factors.

Firstly to have the necessary quality of confidence the technique must not be in the public domain, it must be a trade secret. Information that has been released by the owner including a patent application is considered to be in the public domain. Also if the information allows the engineer to have an unfair advantage in the marketplace (the springboard doctrine - knowledge of the technique allowed the engineer to springboard when setting up his own business)  as a result of obtaining the information then this too would impart a quality of confidence to the information.

Secondly the quality of confidence will be determined by the relationship between the engineer and the factory. If it is one of an employer-employee relationship then a number of factors are considered whether the engineer owed a duty of confidence in respect of this information depending on the nature of the employment and the nature of the information.

The third point about unauthorised use of information occurs where confidence can occur as long as information is passed (in the course of business) and is then used to compete with the person owning the information as in Seager v Copydex.

Speak Without Fear

Joey breaks out in a cold sweat each time he goes to bed. Just after the lights go out his imagination goes wild. Monsters and demons start multiplying and coming out of every corner of the bedroom. This goes on until one day he discovers that these creatures only come out when it is dark and when he is alone. He realizes it is all in his imagination and he can choose to think about it and be fearful or just block it out of his mind and have a good night’s sleep.

We all feel a little bit like Joey each time we give a presentation. Every possible fear – fear of our colleagues laughing at us, fear of our capability being judged by our boss, fear of not looking good in front of our subordinates, start multiplying like Joey’s horrible monsters. There is a need to come to a stage of realization, just like Joey, so that we are able to deliver our message without fear. Or we can simply sleep with the lights on, hoping that the monsters and demons will go away.

I would like to challenge you to a simple test. Imagine that you are reporting what you have achieved in the last quarter at work. Your immediate colleagues and supervisor are seated in conference room. The lights are dim, the bright projector is on and colourful PowerPoint slides are being projected on to the screen. At the same time list down what you think your colleagues and boss are thinking as your presentation unravels. Write every little thought that they could possibly think of. Once you have exhausted your list take a deep look at what you have just written.

Now cross out all those thoughts that pertain to you rather than your speech. Notice how many crosses there are? Now look at those thoughts that remain uncrossed. This is what is REALLY on peoples’ minds when you are talking to them. People are interested to hear what you have to say rather then hear you. Get that big ego out of the way, you are not under the glare of the spotlight! It’s a bit hard to take but it’s the truth! You are the messenger and not the message. Get the thought “I am the important one here” out of your head and focus on how much more informed, persuaded or entertained your audience is going to be.

People who focus on their speeches instead of themselves find that they can immediately warm up to the audience. Their speeches are targeted at their audience, they look at their audience and they speak with and not speak at their audience. In no time their audience is eating right out of their hands.

If we are to succeed in speaking in public we have to stop thinking of presentations and speeches as a kind of performance but an act of communication. How many nights have we spent trying to memorize every word to the letter, thought about the exact second to crack that witty one liner, only to find that once the presentation is over we are back in our seats stumped by the number of stumbles, fumbles and blunders that sprinkled every other line.

There is no such thing as a perfect speech. No matter what, we will end up saying something that wasn’t planned or making an unplanned swaying of our hands. The important thing is to accept that such things happen and proceed as if nothing happened. What the audience is looking for is a well thought out speech that communicates clearly and directly and not a well executed triple somersault. Don’t worry about those in the audience who are more keen on looking out for mistakes. They are in the minority and are going to judge you no matter what. Focus on your speech and gaining the respect of the majority and not the attention of these few.

Justin Santiago is the developer and trainer of the two-day Speak Without Fear programme which has helped toddlers and university lecturers alike eliminate their fear of speaking to an audience.

Leasehold Covenants

Were the defects in the law relating to the enforceability of leasehold covenants so serious as to justify the scheme introduced by the Landlord and Tenant (Covenants) Act 1995 for leases granted after 31 December 1995? - Justin Santiago

The Landlord and Tenant Covenants Act (LTCA) 1995 provided a new set of rules governing the enforceability of leasehold covenants under the broad category of the law governing the conduct of landlords and tenants. Leasehold covenants are those terms agreed in a lease that relate to the parties obligations in their capacities as landlords and tenants. The law related to leasehold covenants before 1995 were mostly derived from common law and the LPA 1925. This has changed with the Landlord and Tenant (Covenants) Act 1995 and applies to leases granted after 1996.

The arguments below will show the defects of common law regime and the inadequacy of the LPA in three broad areas :-

1. The principle of continuing liability with its over emphasis on the doctrine of the privity of contract
2. The different abilities of the original tenant and the original landlord to sue on personal covenants and on legal and equitable leases and the difference in treatment of legal leases and
3. The vagueness of terms such as touch and concern land which required extensive judicial interpretation

There will also be a discussion on how effective the LTCA has been in resolving these deficiencies.

The original landlord (L) and tenant (T) had continuing liability for and can be sued on all covenants for the entire term of the lease, even after the assignment of the reversion by L or the assignment of the lease by T, due to the privity of contract. However it was unjust unjust that both L and T should be held liable for breach of any covenant for the whole duration of the lease, even if the breach was performed by a subsequent landlord (AL) or subsequent tenant (AT). Such covenants vulnerable to breaches include, inter alia, paying rent, performing repair obligations and to use the leased land only for the stipulated purpose. Compelling the original T to rectify the breach could prove to be costly, more so if he is going to liable for all other subsequent assignees’ breaches.

Also, by comparing the scope of both AL and AT’s liabilities and abilities to sue, it can be seen that AT has a more limited scope to sue. AT’s ability to sue depends on the rule in the Spencer’s Case, one of the criteris is, (1) there must be a legal lease, (2) there is an assignment of the lease by deed; (3) there is privity of estate between L and T; and (4) the covenant must touch and concern the leased land. Where there is privity of estate, the benefit and burden of covenants relating to L’s land run with any assignment, such that the assignees will be bound by them, pursuant to S78 and S79 LPA 1925.
Therefore, AT may only enforce covenants in a legal lease.

AL, on the other hand, has the ability to sue pursuant to S141 LPA 1925, on covenants in all leases which have reference to the subject matter of the lease pursuant to S142 LPA, which includes legal leases, equitable leases and oral leases, which are leases for a term not exceeding 3 years at the best rent reasonably obtained under S54(2) LPA 1925. This shows that L has a wider scope to sue while T has a limited scope to sue.

There were also question on which covenants touch and concern the land and which have reference to the subject matter of the lease. If these could not be determined, they could be deemed to be personal and thus could not bind any assignee of the reversion or the lease.

LTCA 1995 was enacted to reform some of these rules. It, however, applies to tenancies created after LTCA 1995 takes effect on 1 January 1996. Tenancies created before that continue to be governed by the previous common law rules. It balances the rights of L and T and is now more certain compared to the pre-1996 rules.

LTCA 1995 abolishes the rule that the original parties continue to be liable for all covenants, whether personal or otherwise, and added the onus of release from the covenant on L. LTCA 1995 also releases T from all obligations, save for a few exceptions, and included a special provision for recourse against any occupier other than T himself. His burden for breaches of covenant are reduced S17 T needs to be notified by L/L1 of the breach of the covenant by T1 and is liable up to a maximum of six months. Previously there was no time limit in which he had to be notified of the breaches committed by subsequent assignees.

S3 provides that the benefit and burden of all L and T covenants shall pass on an assignment, except for those that are expressed to be personal, per S3(6)(a). LTCA 1995 does not require the differentiation between covenants that touch or concern the land, or covenants having reference to the subject matter of the lease. Instead, it distinguishes covenants that are expressed to be personal, as these are the covenants that continue to bind the original parties to them for the whole term, due to the doctrine of privity of contract. One must note that the lease must stipulate that such covenants are intended to be personal, or else they will pass upon assignment and bind the assignees.

After the assignment of the reversion, the original L would not be liable for or entitled to the burden or benefit of the covenants only if he has applied to be released under S6 in accordance with the procedure set out in S8. Thus, L has the onus of applying to be released from the covenants after an assignment, otherwise he continues to bear the danger of being sued.

After the assignment of the lease, the original T would be released automatically from all the landlord and tenant covenants, per S5. S16 provides that upon an assignment, T may be required by L to enter into an authorized guarantee agreement (AGA) to guarantee the AT’s performance of the covenants. S11 provides that neither L nor T shall be released if the assignment is one in breach of a covenant or by operation of law. Thus, although T is automatically released per S5, he may continue to be liable if he is a guarantor under S16, or if the assignment is an excluded assignment, or if the covenant is expressed to be personal.

LTCA 1995 has no application to sub-leases, but in cases where a sub-lease is granted, L now has a recourse against the sub-tenant, pursuant to S3(5), in respect of a restrictive covenant, whereby it can be enforced against any occupier of that premises. Alternatively, he may rely on Contract (Rights of Third Parties) Act 1999 if the covenant was intended to benefit and bind successors and assignees.

However the 1995 Act did not affect covenants expressed to be personal : BHP Petroleum v Chesterfield – personal covenants are not affected by the statutory scheme of release however the Court of Appeal decided that landlord covenants are not released by the statutory mechanism and the original covenantor remains liable despite having parted with all interest in the property. The problem here is with regard to the term expressed to be personal.

Also London Diocesan Fund and others v Avonridge Property Company Ltd House of Lords has ruled that landlords can draft their way out of the statutory release provisions of the Landlord and Tenant (Covenants) Act 1995.

Leases and Licenses

It is now becoming increasingly difficult to distinguish between a lease and a license. - Justin Santiago

It used to be that defining a lease or license was simply based on defining a lease according to a criteria based approach. A lease grants exclusive possession of the land for a certain fixed or periodic term, in consideration of premium or periodical payments. The importance in defining a a lease was because a lease was an interest in the land and had the ability to bind subsequent purchasers of the land unlike a license which was merely a personal right. A lease can be associated with covenants that are capable of running with the land, and binding successive owners. This is impossible with a licence.

It is important that leases and licenses are distinguishable as they define different obligations for the parties. Landlords would naturally want to grant only a license in order to avoid the various implied obligations by the landlord to keep the property fit for habitation S8 of the Landlord and Tenant Act 1985 and keep in repair and proper working order structure, exterior and installations S11-16 of Landlord and Tenant Act 1985 and the ability to deny exclusive occupation to occupiers and the ability to exclude them from the property at any time. Tenants on the other would prefer that they had a lease which could be sold, given away or left by will putting much power in the hands of the tenant. Additionally they bind third party purchasers of the landlord’s reversion.

The difficulty in distinguishing leases from licenses stems from the difficulty in putting them into separate compartments. There are different shades of leases and licenses and not all are the same. There exist a continuum rather than separate categories. The reality is that leases and licenses do not exist as labels but as to the effect that it seeks to achieve. This is more akin to the intention based approach.

What is more important than the classification is to try and answer the important question of what did the parties seek to achieve when they entered into the agreement. Did they intend to give an interest in the estate? Was the interest intended to bind third parties? Was there intention for successive owners to be bound by covenants?

The difficulty in distinguishing a lease from a license stems from the inadequacies of the criteria based approach as it has been found in several cases that the criteria are not always certain. -

Exclusive Possession

Street v Mountford hinged on whether the grant conferred exclusive possession. This reasoning was followed in Bruton v London Housing Quadrant where a transaction carefully described as a license was interpreted as a lease because the agreement gave exclusive possession hence creating a lease.

However this criteria based approach if applied strictly could lead to injustice and the courts have intervened to give effect to intention of the parties :-

Agreements containing sham devices purported to deny the occupier exclusive possession as exemplified in Antoniades v Villiers where it was held that an agreement provided for the separate occupancy of an unmarried couple in what was to be their home was held to be a tenancy because the separate agreements was clearly a sham device and the doctrine of pretence would be invoked whereby the courts would strike down the sham devices purporting to deny the occupier exclusive possession since it was clearly evident that the unmarried couple intended to have exclusive possession of the property.

Clear Channel UK Ltd v Manchester City Council in which there was no intention to grant exclusive possession and hence no lease.

Mehta v Royal Bank of Scotland – despite apparent exclusive possession, the occupier of a hotel room was said to have a licence, presumably because it is never intended to create a leaseof such a property.

Where there is no power to create a lease - Gray v Taylor where occupation of an almshouse did not indicate the existence of a lease since the charitable trustees who were landlords did not have the power to create a tenancy,

Exclusive possession does not necessarily connote a tenancy if there are other factors of greater significance to be considered such as absence of the four unities necessary – interest, title, possession and time to support a joint tenancy for the whole premises : AG Securities v Vaughn.

Norris v Checksfield where the right to occupy was given to an employee for the better performance of his duties and therefor not held to be a lease

Bostock v Bryant – act of generosity

Heslop v Burns – where there is no intention to create legal relations at all in a family situation

Fixed term

Leases must have a fixed beginning and a fixed end and be determined at the outset – this would define the term of years absolute laid down by S205(1)(xxvii) LPA 1925 and distinguish a leasehold estate from a fee simple absolution in possession, one of two legal estates according to S1(1) LPA 1925.

This was decided in Lace v Chantler where a lease for the duration of the second world war was held void as being of uncertain maximum duration.

Parliament has pushed for certainty of duration in leases – Validation of War Time Leases Act 1944 was enacted to that converted all war time leases to a term of 10 years with a proviso that either landlord or tenant could terminate the lease once the war ended by giving a month’s notice.

Similarly lease for life and lease until marriage are void but both are saved by S149(6) LPA 1925 which says that these leases are for 90 years and come to an end when the tenant dies.

Perpetually renewable leases are converted into terms of 2000 years : S 145 LPA 1925.

There has been some uncertainty with regard to periodic tenancies i.e. those which repeat indefinitely until ended by notice to quit being given by either party. This sits uneasily against the requirement of certainty of term since the maximum term cannot be predicted at the beginning of the periodic tenancy. There are three different types of reasoning :-

Ashburn Anstalt v Arnold was an attempt to break away from Lace v Chantler as it was stated that a periodic tenancy amounted to a lease on the basis that the term could be rendered certain by action of one of the parties.It was thought that there are good and sound commercial reasons for this. However this line of cases has been overruled by the House of Lords in Prudential Assurance v London Residuary Body (1992) 3WLR 279 that a leasehold term must be certain from the outset. The term relating to the ability of either party to determine a yearly tenancy on six months’ notice to terminate if there was road widening works to be undertaken was not enough. and as a result the tenancy had been lawfully determined. This brings the law back to Lace v Chantler and supports the argument that tit is becoming increasingly difficult to distinguish a lease from a license.

Premium/Periodical Payments

Under S205 of the LPA, rent is not an essential requirement of a lease. Although not a requirement, the courts have decided if a certain sum is paid regularly then it goes towards showing there was a periodic tenancy. In Bostock v Bryant the obligation to pay fluctuating utility bills could not be regarded as rent, being an uncertain sum. Therefor the issue of whether payment of rent determines a lease remains uncertain.

Coownership of Property

Coownership of property requires an understanding of concepts of joint tenancy and tenancy in common as this would determine how property would be passed under the right of survivorship.

Legally co-owned property would mean that the owners hold the legal title on trust for themselves as beneficial joint tenants : Goodman v Gallant. They would also hold the property as joint tenants in equity.

Williams v Hensman set out the three ways in which equitable joint tenancy can be severed into an equitable tenancy in common under the old rules of equity (preserved by LPA 1925 S36(2). They are in effect :-

a. alienation of her interest inter vivos by a joint tenant
b. mutual agreement
c. any course of dealing which shows that the interests of all were mutually treated as constituting a tenancy in common. This point would be especially relevant if one party orally agrees to sell the other party his or her shares.

Additionally severance will be effected if a joint tenant serves a notice of severance in writing satisfying S36(2) of the LPA - no requirement to sign. The written notice must contain an unambiguous declaration of an intention to sever with immediate effect; not at some time in the future; or an intention to ask the court to sever : Harris v Goddard and the notice must be given to the other party. LPA 1925 S196(3) equates service with giving and will be effective if left at the intended recipient’s last known place of abode : Re 88 Berkeley Road. In Lord Newborough v Jones the notice would have to be left in a way which could reasonably be expected to bring it to the attention of the recipient.

This follows the requirement of LPA S53(1)(c) a disposition of a beneficial interest would need to be in writing and therefor evidential requirement in writing would have to be produced to show that there was disposition of the interest to prevent fraud on the part of other parties.

Under a joint tenancy interests cannot be passed. However under a tenancy in common interests can be passed under the right of survivorship. Therefor where one party wants to pass on the property after death it is important to determine the act of severance. To claim an interest it will therefor be for the person claiming the interest from the dead person to show on a balance of probabilities that the joint tenancy was severed before death. If not the interest would rest with the other joint tenants.

The second line of argument would be where equity would recognize a severance by mutual agreement even where the agreement which causes the severance is unenforceable in its own right due to lack of formality : Burgess v Rawnsley. As per Lord Denning’s obiter, “It is sufficient if there is a course of dealing in which one party makes clear to the other that he desires that their shares should no longer be held jointly but be held in common…”

If it can be established that there was severance and there existed a tenancy in common then the aggrieved party is sad to hold a beneficial interest in the property. As a beneficiary she will have a right to occupy the land under Trust of Land and Appointment of Trustees Act 1996 (TOLATA 1996) S12. An application of sale of the property could be made under TOLATA 1996 S14 but subject to S15 which sets out the matters to be considered by the court in hearing such an application :-

1. Intentions of the creator of the trust
2. Purposes of the trust
3. Welfare of any minor whose home is in the property
4. Interests of any secured creditor

Under the Trusts of Land and Appointment of Trustees Act 1996 S15(2) asking the court to use its discretion to have regard to the circumstances and wishes. There is wider discretion in favour of families under S15 The Mortgage Corporation v Shaire. However the situation might have been different if the interest in the land had been insignificant : Bank of Ireland Home Mortgages v Bell.

The rules with regard to the evaluation of the interests of parties were recently considered by the Court of Appeal in Oxley v Hiscock. If the claimant has an interest in the house, the value of that interest is ascertained at the time the property is sold. Accordingly, any increases or decreases in the value of the property are taken into consideration. If a party remains in occupation paying the mortgage, rates and other outgoings, he or she is credited with these expenses. Conversely, the party in occupation is debited with occupation rent for using the premises partly owned by the other. In Oxley the court identified three approaches thus:

1. The approach adopted by Lord Diplock in Gissing v Gissing and Nourse LJ in Stokes v Anderson, the respective shares of the parties are not to be determined at the time of the acquisition of the property but are left to be determined when their relationship comes to an end or the property sold. Thus, a complete picture of the whole course of dealing is available to the court in order to determine what is fair.

2. The approach suggested by Waite LJ in Midland Bank v Cooke - the court undertakes a survey of the whole course of dealing between the parties in order to determine what proportions the parties must be assumed to have intended from the outset for their beneficial ownership. Thus evidence of what the parties intended at the time of the acquisition may be inferred from the conduct of the parties while they were living together.

3. The suggestion put forward by Browne- Wilkinson V.C. in Grant v Edwards and approved by Walker LJ in Yaxley v Gotts - the court in its discretion makes such an order as the circumstances require in order to give effect to the beneficial interest in the property of the one party, the existence of which the party with the legal title is estopped from denying.

In Oxley the Court of Appeal expressed a preference for the third approach. The second approach was capable of leading to an artificial or fictional intention of the parties. Likewise, the same point could be made of the first approach i.e. at the time of the acquisition the parties’ intention was that their shares should be left for later determination.

Equitable Interest in Land

Equitable interests in land - Justin Santiago

An equitable interest in land is pleaded when the aggrieved party has no legal interest in the land and is not the registered proprietor with absolute title. Such equitable interests can be claimed based on different situations and under various mechanisms such as express trust, resulting trust or constructive trust. An implied trust of land does not require it to be manifested and proved by some writing signed by the person able to declare the trust or thus circumventing LPA S53(1)(b) as allowed under LPA S53(2). Alternatively it could be possible to claim a contractual licence or an interest under a right of occupation.

Express Trust

A declaration of trust in respect of land or any interest therein must be manifested and proved by some writing signed by the person able to declare the trust or by his will satisfying the requirement of LPA S53(1)(b). Where there is an express declaration of a trust the parties are to hold as beneficial joint tenants : Goodman v Gallant and the parties would have an equal share in the property. However an express trust can also be inferred from a common intention that the house would be a matrimonial home : Paul v Constance.

Resulting Trust

If there was unequal contributions towards the purchase price of the house and if there is an absence of evidence of a different common intention an interest as a tenant in common with shares in proportion to the contribution under a resulting trust arises : Bull v Bull.

An interest under a resulting trust requires a direct contribution to the purchase price of the land made at the time of its acquisition by the person claiming the beneficial interest : Midland Bank v Cooke, Hammond v Mitchell. In Midland Bank v Cooke the courts held that in the absence of express agreements all conduct would be surveyed to throw light on what shares were intended. In Hammond v Mitchell the conduct surveyed included any promises of the interest to be had, any sharing of money, whether there was any detriment.

Constructive Trust

A beneficial interest may be claimed under a constructive trust which is the formula through which the conscience of equity finds expression : Beatty v Guggenheim Exploration Co. In Westdeutsche Landes-bank Girozentrale v Islington London Borough Council Lord Browne-Wilkinson identifed a constructive trust as a trust ‘which the law imposed on the trustee by reason of his unconscionable conduct’. In Paragon Finance v D B Thakerar & Co Millett LJ stated that a ‘constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his beneficial interest in the property’.

However limitations have been imposed on the constructive trust. Three conditions were laid out in in Grant v Edwards :-

a. Evidence of a common intention that the claimant should have a beneficial interest
b. The claimant has acted to his/her detriment on the basis of the common intention
c. Equitable fraud on the part of the legal interest holders

Further evidence of common intention are found in Lloyds Bank v Rosset :-

1. Evidence of agreement in the form of express discussions between the parties and
2. Evidence of conduct which includes direct contributions to the purchase price and payment of mortgage installments

It was intended by Lord Bridge that the value of the claimant’s share was to be determined by reference to the two categories of evidence. But the courts have adopted a more liberal approach, namely, once an interest has been established under at least one of the categories of evidence, the court has a general discretion to do what it considers just and fair in the circumstances.
The quantum of the beneficial interest is measured by reference to these contributions.

The courts are more likely to take a broad brush approach in determining the shares of the parties : Drake v Whipp. This was affirmed in Oxley and Hiscock where the courts considered that when two persons contributed to the purchase of land conveyed into the name of one of them and where there was no agreement about the quantification of their respective shares, the court was entitled to take into account the whole course of conduct between the parties in determining what would be a fair share. In the case of Le Foe v Le Foe, the courts showed a greater willingness to regard indirect contributions as triggering a share. This shows a return to earlier decisions by the courts in cases like Hussey v Palmer and Gissing v Gissing (pre Rosset) which showed flexibility in giving an interest to the party which made indirect contributions allowing the legal owner to make mortgage payments.

If an interest can be claimed under any of the three mechanisms above the interest would exist behind a trust of land (formerly trust for sale) governed by the Trusts of Land and Appointment of Trustees Act 1996. Under a trust of land a purchaser would have to pay to at least two trustees. If the money is paid to two trustees, the occupiers’ interests will be overreached even if they were in actual occupation : City of London Building Society v Flegg.

The nature of a beneficiary’s interest under a trust of land is such that they are neither registrable nor overriding under the LRA 2002. Such interests behind a trust of land are not capable of protection on the Register. A Restriction may be entered, forcing overreaching; but the Restriction does not protect the equitable interest and no Notice may be entered.

License

If the aggrieved party has no beneficial interest in the property the claimant only has a licensee which is a temporary occupation permit. If the claimant is a bare licensee he can be evicted with reasonable notice. However there is a possibility that he can claim a licence supported by a contract, by constructive trust, by estoppel or by a license coupled with an interest.

If by contract the aggrieved party should be able to prove all the elements of contract law – offer, acceptance, consideration, intention to create legal relations are met. A contractual license would give the claimant a right to stay on the land as a tenant for life and has been argued to amount to an interest in land : Errington v Errington Wood however this was declared per incuriam in Ashburn Anstalt v Arnold where it was stated that a contractual license could never amount to an interest in land following the traditional view of King v David Allen and Sons Billposting Ltd and Clore v Theatrical Properties Ltd where it was decided that a contractual licence cannot be a proprietary right and therefore cannot bind a third party even if he has notice. A contractual licence affects only parties who have entered into the agreement and should not be capable of binding third parties. The most that the agrieved party could claim was a breach of contract and therefore entitled to compensation for the loss of the expectation : Baker v Baker.

The other scenarios sees equity stepping in by way of a constructive trust to protect a licensee from third parties in cases where the purchaser was not bona fide : Binions v Evans. In this case a life tenancy was imposed by a constructive trust that would bind third parties. In this way the licences are becoming more difficult to distinguish from leases in terms of the rights which they confer upon the holder and has been applied equally to both unregistered land : Binions v Evans and registered land : Lyus v Prowsa Developments. The most striking case of a court treating a licence as effectively a property right is probably Bruton v London And Quadrant Housing Trust1977, where the House of Lords held that a lease could be granted out of a licence.

The third option is for the aggrieved party to claim a license arising out of estoppel and this would amount to an interest which would bind third parties and which can be protected by way of notice. Estoppel can be invoked if it can be coupled with a right that A may have which could be a rent free tenancy if there is continuous occupation : Greasley v Cook. He would have to prove that there was a representation made to him, there was reliance/change of position and there was detriment / unconscionable disadvantage. The question would be whether it would be conscionable to allow the sellers to insist on their strict legal rights : Taylor Fashions Ltd v Liverpool Victoria Trustees.

The purpose of the doctrine is to give rise to a number of remedies both proprietary and non proprietary and there is great flexibility in granting remedies to achieve such results as it thinks fair and reasonable in the circumstances. This could be a license to remain on the land : Inwards v Baker or even an interest in the land : Pascoe v Turner. However the particular interest to be awarded must still be decided by the judge according to all the circumstances of the case. It is difficult to find any consistent principle running through the cases. The modern approach to proprietary estoppel and how to give effect to the equity was considered in depth in the two following cases : Campbell v Griffin – repayment of any detriment incurred and Jennings v Rice – there must be proportionality between the expectation and the detriment.

As with the constructive trust, the inspiration behind proprietary estoppel can be seen in equity’s concern to prevent unconscionable conduct the difference is the central element for proprietary estoppel is detrimental reliance. However there are several differences between the two:-

1. The constructive trust has a long established use to impose a trust in situations unrelated to the principle of detrimental reliance

2. Secondly a constructive trust means by definition that a person has an equitable share in the property held by another. In a sense, the term “constructive trust” is used to describe both the legal mechanism by which a trust property is created but also the trust interest thus created. On the other hand, proprietary estoppel is a mechanism which if established may give rise to proprietary interests other than a trust.

A final option is for the aggrieved party to claim a license coupled with an interest and the licence exists to facilitate the enjoyment of the interest.

If it can be established that Olga has an interest either under enforceability of a contractual license by a constructive trust or an estoppel it would bind the buyer if it had been protected on the register or if it was supported by actual occupation as an interest that overrides under Schedule 3 Para II of the LRA 2002 (formerly S70(1)(g) which will protect Olga’s interest upon sale. If such cases any buyer or mortgagor would take the property subject to the aggreived party's interest unless it was not obvious that the aggrieved party was an occupier with reasonable inspection of the property.

Selling Land - Equitable Title and Legal Title

Selling Land - Justin Santiago

Selling land requires two stages – a contract which transfers the equitable title followed by the transfer of legal title (conveyance).

Law of Property (Miscellaneous Provisions) Act 1989 S2 states that a contract for the sale or other disposition of an interest in land only transfers the equitable title and must fulfill 3 requirements “-

- it must be in writing
- it must incorporate all the terms in one document
- must be signed by or on behalf of each party to the contract

The next requirement is that the conveyances of a legal estate by way of sale must be by deed LPA S52(1) which transfers the legal title. Under the Law of Property (Miscellaneous Provisions) Act 1989 S1 - a deed is defined as a document which :-

- makes it clear on its face that it is a deed requires that the word ‘Deed’ appear on the document
- is signed and witnessed
- is delivered

Registered Land

How has LRA 2002 changed land law. Discuss. - Justin Santiago


The Land Registration Act 2002 was introduced in response to the Law Commission and HM Land Registry report, Land Registration for the Twenty-first Century (2001).The Act simplified and modernised the law of land registration. A key change under the new Act is that it is a move from a system of registration of title to one where the fact of registration itself gives a person title to the land. The act also facilitated the introduction of e-conveyancing and made the register reflect a more accurate picture of a title to land, showing more fully the rights and subsidiary interests that affect it.

The Act made some major changes to the law regulating registered land. Specifically, it:

1. Increased the list of events that force compulsory registration and voluntary registration;
2. Enabled shorter leases to be registered;
3. Changed the system of protection of third party rights; and
4. Provided for electronic conveyancing.

The increased list of events that force compulsory registration and voluntary registration would enable more land to come under registered title and reduce the volume of unregistered land conveyancing.

Compulsory registration - if a sale had been completed after 2003, according to LRA 2002 S4, any transfer of an unregistered freehold estate or a leasehold estate in land with more than seven years to run will be subject to compulsory registration. Transfer is broadly defined to include sale, gift, court order or the creation of a first legal mortgage. Originally under LRA 1925 registration of title was only compulsory on conveyance on sale of a fee simple and a grant of a lease for more than 21 years or assignment of a lease with more than 21 years to run.

Voluntary Registration

Under LRA 2002 S3 voluntary registration is encouraged for five types of legal estate which may be registered with their own title :-

1. Freehold
2. Legal lease with over seven years to run
3. Rent charge
4. Franchise (Right granted by the Crown)
5. Profit a prendre in gross

Protection of third party rights

The LRA 2002 attempted to more clearly reflect the true nature of the rights in the land concerned and to depend less on the doctrine of notice. Under registered land, the doctrine of notice supposedly did not have any application due to the fact that the system of registration is based on the mirror principle which reflects all the interests in the land. However there existed interests called overriding interests. Overriding interest loomed large in the scheme of LRA 1925 and although were not registrable protected rights of third parties representing a crack in the mirror and provided the most common pitfall for a purchaser of registered land and were listed in LRA 1925 section 70(1) and include the following 4 categories :-

- S70(1)(a) easements and profits including equitable easements
- S70(1)(f) rights of an adverse possessor
- S70(1)(g) rights of person in actual occupation – date of transfer of title : Abbey National BS v Cann
- S70(1)(k) leases granted for a term not exceeding 21 years

Under LRA2002, the role of overriding interests had been substantially reduced and was replaced by interests that override for which registration was strongly encouraged. Some interests that have been removed are equitable easement whether expressly or impliedly granted S70(1)(a) and the rights of adverse possessors unless accompanied by actual occupation S70(1)(f). The LRA 2002 also reduced the considerable burden to purchasers of the rights of persons in actual occupation under S70(1)(g) where :-

1. Enquiries have been made of the right-holder and he has failed to disclose the right in circumstances where he was reasonably expected to disclose and
2. The right holder’s actual occupation is not obvious on a reasonable inspection of the land and the person bound did not have actual knowledge of the interest

Under the new regime, there are two new categories of interest :-

Schedule 1- a broad category of interests which override on first registration of title that is will override the estate of the person who first registers when the land ceases to be unregistered land including :-

- leases up of to and including seven years
- the rights of occupiers – Schedule 3 Para 2
- easements and profits
- local land charges

Schedule 3 – a shorter list of interests which override on a later disposition of registered that is a sale of land after it has been registered :-

- leases up to and including seven years
- the rights of occupiers
- legal easements actually known to exist by the purchaser, obvious upon a reasonably careful inspection of the land or exercised within one year prior to the date of the disposition in question – overulling Celsteel v Alton
- profits

Section 71(b) imposes a duty for the person applying for registration of a disposition to disclose information about any rights of which he is aware which might fall within the scope of Schedule 3 and thus override. Protection by a notice on the register actually removes overriding status S29(3). Thus the number of overriding interests should be diminished as more dispositions are made under the new legislation with more interests coming onto the register.

Electronic Conveyancing

Electronic conveyancing is set out in Part 8 of LRA 2002 and provides for the conveyancing procedure to be carried out online. The act of creation will be the act of registration and this will be electronic.

The objective of electronic conveyancing is :-

1. A paperless system
2. No registration gap
3. A notional and viewable version of the register as amended to reflect proposed contractual terms
4. Draft documents verified against the title register and requisitions raised there and then as the transaction progresses
5. Quick identification of encumbrances
6. Possibility of simultaneous exchange of contracts or completion instantaneously

Problems

However problems still exists notably in the following areas :-

1. Interests in registered land may sometimes fall into one class and sometimes into another ex. someone with a interest that is neither registrable nor overriding is in actual occupation may protect his interest by entry on the register or rely on his occupation as entitling him to an overriding interest.

2. Interests that are neither registrable nor override allows the doctrine of notice to continue to apply in the case of registered land. These third type of interest formerly known as minor interests now termed third party rights which need to be protected by entry on the register comprising interests in unregistered land that would be registrable under the LCA and those that comprise interests of beneficiaries under trusts of land and strict settlements that were capable of being overreached under LRA 2002 S28-30. A new form of restriction will perform the functions of the current restriction and inhibition and a new form of notice will combine the functions of the current notice and caution. A restriction may be entered, forcing overreaching but the restriction does not protect the equitable interest and no notice may be entered.

2. Also short leases granted for period not exceeding seven years also bind any disponee of a registered and thereby detract, at least marginally, from the completeness of the mirror image which the Land Register is meant to reflect.

3. A periodic tenancy for less than 3 years is legal without a deed or document and is not registered anywhere.

4. A beneficial interest arising under a trust of land may bind a purchaser as an overriding interest even though it is not protected by entry on the register. A beneficial interest arising under a trust of land may be overreached if the purchaser pays to two trustees or a trust corporation whether they are in actual occupation or not. Thus a trust of land neither protects purchaser or interest holder and the LRA 2002 does not cater this type of situation adequately. Thus a person who has negligently failed to protect his interest is protected while the purchaser is bound to make much more extensive enquiries

5. The triggers for compulsory registration do not include a grant of a lease for exactly seven years and transfer of existing leases with less than 7 years left to run

6. Spouse’s right of occupation must be protected by entry on the register although a spouse may incidently have another interest which is capable of overriding the register such as a constructive trust interest.

Corporate Veil

The ‘corporate veil’ refers to the separation of legal identity between parent firms and their subsidiaries, which gives the parent protection against the liabilities of its subsidiaries.

Malaysia Does Not Practice the Rule of Law

Historically, the most influential account of the rule of law was offered by A.V. Dicey. His formulation incorporated three ideas:

(1) the supremacy of regular law as opposed to arbitrary power;
(2) equality before the law of all persons and classes, including government officials; and,
(3) the incorporation of constitutional law as a binding part of the ordinary law of the land.

The second precept of the Rule of Law states that there is equality before the law of all persons and classes. Malaysia does not practice the Rule of Law because it treats different people of different races and religions differently. So those who are given preferential treatment will ultimately consider themselves superior to those who are not given preferential treatment and maybe even above the law.

So long as Malaysia does not respect the Rule of Law, racism, dhimittude and similar behaviour patterns will continue to exist.

Secret Trusts

Is there any coherent argument for the admission of non-conforming evidence in the case of secret trusts? - Justin Santiago

The law requires that for a disposition to be effective and that the equitable interest is assigned to the beneficiary it must be in writing according to S53(1)(c)of the Law of Property Act 1925. The Wills Act 1837 also only allows last wishes to be made in writing, signed by the testator and signed by two people who have witnessed the testator's signature formally.

Secret trusts involve making an oral declaration without the details being made public save only to the person who is asked to put into effect those wishes. In the case of fully secret trusts there is no trust at all because for all intents and purposes it is an absolute gift to the legatee.

Apart from not fulfilling the written requirement, secret trusts also bypass very fundamental trust requirements such as the requirement for imperative words, evidence of acknowledgement by the trustee of the terms of the trusts and the trustee also being the beneficiary :-

Trusts need to consist of imperative words and have objects that are certain.

In the case of half secret trusts the trust consists of precatory words and also is not clear on the objects.

Trusts must be manifested by means of an acknowledgement that the trustee be bound by the terms of the trust : Ottoway v Norman. In the case of both fully secret and half secret trusts there is no evidence of acknowledgement that the secret trustee by bound by the terms of the trust.

In the case of fully secret trusts because the secret trustee is the beneficiary there is a wide scope for fraud as the trustee could claim that he would take of the gift absolutely.

Several justifications for allowing secret trusts have been put argued by several theories in defence of secret trusts such as the fraud theory and the dehors the will theory to justify their justify their admission. However it seems that these theories are mainly used to the testator to make such a disposition as he or she pleases without the details being made public as in the case of transfer of property to a mistress or an illegitimate child. Two theories which are frequently cite are the fraud theory and the dehors the will theory :-

The Fraud Theory

The fraud theory states that secret trusts would be enforced by a court of equity in favour of a secret beneficiary on grounds that equity will not permit a statute to be used as an instrument of fraud. The fraud theory supposes that the purpose of the fraud would either be for the trustee to take the gift absolutely for his personal gain and to deny the secret beneficiary or to disappoint the wishes of the settler (expanded fraud theory : Blackwell v Blackwell).

The Dehors (Outside) the Will Theory

The dehors the will theory states that the the secret trust operates outside the testator’s will and should not be regarded as testamentory trusts at all. This is exemplified by the rule that in probate law is that the will does not take effect until the testator's death. Therefore, if a named beneficiary is not alive at that time, his estate is not entitled to anything. However, in Re Gardner, the secret beneficiary's estate was held to be entitled to the deceased beneficiary's interest under the half-secret trust. This supports the view that the trust comes into existence `dehors the will', but does not explain when the trust was constituted. In any case, this decision is out of line with normal probate rules.

There is a further third theoretical justification that the doctrine of secret trusts is part of the law on incorporation by reference which states that a document can be incorporated into a will by being referenced in the will, but only if the document exists at the time the will is executed. However secret trusts is about oral testimony and hence this theory has been rejected.

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.

Charitable Trusts

What are the approaches taken to determine whether a proposed trust, which appears to provide for a novel purpose not found to be charitable or uncharitable by a previous judicial decision is charitable? Are any reforms of the law indicated? - Justin Santiago

The question refers to the fourth category of charitable trusts called trusts for other analogous purposes within the spirit and intendment of the Preamble to the Statute of Charitable Uses 1601 which was distilled by Lord Mcnaghten in the case of Commissioners of Income Tax v Pemsel. This fourth category allowed for charitable trusts other than those outlined in the first three categories outlined in the preamble namely trusts for the relief of poverty, trusts for the advancement of religion and trusts for the advancement of education.

This fourth category of trusts includes a purpose which confers a benefit on the public Incorporated Council for Law Reporting Society v AG and which must be wholly and exclusively chartable.

Beneficial to the community would mean that a charitable trust must have a sufficient element of public benefit in order to attain charitable status i.e. it must not be confined to a small section of the population Neville Estates v Madden and there must be no denying any element of public participation in the purpose : Oppenheim v Tobacco Securities Trust Co 1951. Oppenheim is generally taken to have decided (at least for educational trusts) that a public purpose trust cannot exist where there is a “personal nexus” between the donor and the beneficiaries.

The exclusively charitable requirement was outlined in Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] 1 All ER 747, the House of Lords decided that a gift to the City of Glasgow Police Athletic Association was not charitable on the grounds the charitable purpose namely, improving the efficiency of the Police Force, was purely incidental to the non-charitable purpose of providing recreational activities for members of the force.

For the fourth category it is not enough simply to show that the purpose confers a benefit on the public – inherent in the purpose that it is beneficial to the community – it must also be shown to be a charitable trust – AG v National Provincial and Union Bank of England – it must be analogous to purposes which are found in the Preamble : Williams v IRC. The approach of the courts is to treat the examples as stated in the preamble as a means of guidance in deciding on the validity of the relevant purpose. Two approaches have been adopted by the courts namely;-

1. Reasoning by analogy : the approach here is to ascertain whether a purpose has some resemblance to an example as stated in the preamble or to an earlier decided case which was considered charitable : Scottish Burial Reform and Cremation Society v City of Glasgow Corporation : provision of a crematorium was considered charitable by analogy with the repair of churches as stated in the preamble.

2. The spirit and intendment of the preamble : this approach is much wider than the previous approach. The courts decide if the purpose of the organization is within the spirit and intendment or within the equity of the statute unhindered by the specific purposes as stated in the preamble : Incorporated Council of Law Reporting v AG - if a purpose is shown to be beneficial to the community per se this should be enough to guarantee charitable status unless some positive harm or unwanted effect can be proven this is the public benefit approach – tainted by politics McGovern v AG.

3. Beneficial to the community would mean that a charitable trust must have a sufficient element of public benefit in order to attain charitable status i.e. it must not be confined to a small section of the population or be so limited by the stipulations of the testator as to deny an element of public participation in the purpose. Although the limitation on the class of persons who may derive a benefit from the charity does not destroy the public character of the trust, a second or third limitation may well make it so difficult for the public at large to qualify for the charitable benefit that there is no real public benefit at all : IRC v Baddeley. In Dingle v Turner (1972) a trust to benefit a company's poorer employees was held to be charitable, despite the strong, but much criticised message of Oppenheim v Tobacco Securities Trust Co 1951. Oppenheim is generally taken to have decided (at least for educational trusts) that a public purpose trust cannot exist where there is a “personal nexus” between the donor and the beneficiaries which confirmed the test in Re Compton which stated that lacking the essential element of public benefit if the potential class of persons likely to benefit are united by a common personal bond.

4. Reference to the identification of the objects as exclusively charitable. In Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] 1 All ER 747, the House of Lords decided that a gift to the City of Glasgow Police Athletic Association was not charitable on the ground that the trust funds were capable of being devoted for both charitable and non-charitable purposes. The charitable purpose namely, improving the efficiency of the Police Force, was purely incidental to the non-charitable purpose of providing recreational activities for members of the Force. Lord Normand declared:

The Charities Act 2006 although not providing a statutory definition of charity has attempted to reform the law on charities and extended the fourfold categorization in Pemsel to 12 though some of this is little more than a codification of earlier decisions on the fourth head including advancement of advancement of amateur sports, advancement of human rights – McGovern v AG, advancement of animal welfare, citizen and community development – Williams v IRC and expanded on the category of religion to include belief in more than one god and religion which does not involve belief in a god and the retention even the expansion of the analogy approach. However the definition of charity in S1(1) is still not clear and the public benefit test requirement although included under S3 of the act is still not properly defined. Section 3(3) consolidates the case law meaning of public benefit. This involves a two step test of demonstrating a benefit to society (as mentioned above) and that those eligible to receive benefits must comprise a large enough group to be considered as the public and without a personal or private relationship being used to limit those who may benefit.

The Charities Act 2006 attempted to resolve the public benefit test requirement. Section 3(3) consolidates the case law meaning of public benefit. This involves a two step test of demonstrating a benefit to society (as mentioned above) and that those eligible to receive benefits must comprise a large enough group to be considered as the public and without a personal or private relationship being used to limit those who may benefit.

Ultimately courts will interpret charitable trusts rather broadly because charitable trusts are regarded as beneficial to society as a whole and as such can bypass the beneficiary principle and avoid conformity with the certainty of objects requirement. This is because in the case of charitable trusts there need not be a named beneficiary. Attorney General may take an action on behalf of the Crown. Charity is regarded in law as indivisible, irrespective of the actual group or body carrying out the purpose. As such it would not be contrary for money to be permanently dedicated to charitable purposes and will not fail.

Charitable trusts can defeat the rule against perpetuities - may be of unlimited duration.

Can defeat the rule against remoteness of vesting which will allows the court to order a gift over from one charity to another if the original charity should fail and be used for purposes as near as possible to the original purposes under the rules of cy-pres – re Lysaght, re Farakar.

May enjoy substantial fiscal advantages in the form of reduction or exemption from various taxes and charges.

Declaration and Disposition

Many attempts have been made to avoid the action of s.53(1)(b) and s.53(1)(c). - Justin Santiago

The sections of the LPA 1925 refer to written evidence required in a declaration of a trust and disposition of an equitable interest respectively. The avoidance of these two sections is to avoid these two requirements in order not to pay stamp duty which is required when a beneficial interest is transfered to the beneficiaries. Anyone who wants to avoid paying stamp duty will want to avoid using a document to create or transfer a trust. Most attempts to do this have failed. The courts take a dim view of over-enthusiastic tax avoidance, and the lack of precision of the term “disposition” has allowed them to give effect to that view. Arguments about whether it is possible to come up with a way to defeat s.53 to the satisfaction of a judge are now moot - stamp duty is generally only payable on land transactions, and it's almost impossible to do anything with land these days unless it is in writing.

S53(1)(b) states that a declaration of a trust of interests in land must be manifested and proved by some writing and signed by some person who is able to declare a trust. This statue is based on S7 of the Statute of Frauds 1677 which requires written proof of a declaration of a trust. The writing must be signed by the settlor (or the testator in the case of the will). Signature by an agent is not permitted. The written requirement does not have to be on the date itself it is merely a confirmation of a declaration of trust that happened before. The trust would still operate from the date it was declared. The general view is that Section 53(1)(b) is merely an evidential requirement provided the matter came to court rather than substantive in nature. Non-compliance with the provision would merely render the trust unenforceable although it will be perfectly valid. It is possible for there to be a joinder of documents in order to fulfil the requirements of the subsection. Constructive trusts and resulting however are specifically exempted from formality requirements according to S53(2) outflanking the rule in S53(1)(b).

However the effect of S60(3) LPA 1925 which states that “In a voluntary conveyance a resulting trust for the grantor shall not be implied merely by reason that the property is not expressed to be conveyed for the use or benefit of the grantee”. This is of course contradictory to Russel LJ’s reasoning obiter in Hodgson v Marks that a trust that fails for want of formality is saved by an automatic resulting trust. This reasoning is of course false because there is nothing automatic.

In the case of Rochefoucold v Bousted, the COA held that an oral declaration could be allowed based on the equitable maxim a statute cannot be used as an instrument of fraud and the court is entitled to suspend the operation of the statutory requirement of evidence in writing. It is important to see whether there was any point of a fraud being committed and to show that the party being promised to acted to his detriment or significantly altered his position as proof that there was an oral declaration that would vest the equitable title to him. Alternatively the extended fraud theory can be invoked in order to create a half secret trust which can be allowed as an exception.

T.G. Youdan in his article "Formalities for Trusts of Land and the Doctrine in Rochefoucauld v Boustead" has argued that the third party beneficiary should be entitled to enforce the trust – whether or not the settlor is dead – under the Rochefoucauld doctrine as well as in half secret trusts.

S53(1)(c) states that disposition (not creation) of an existing equitable interest (not legal title) subsisting (must be in existence) at the time of the disposition must be in writing not merely proved by writing for it to be assigned (transferred) to third parties. The underlying policy was to :-

a. prevent fraud by prohibiting oral hidden transfers of equitable interests under trusts and
b. assist trustees by enabling them to identify the whereabouts of the equitable interest subsisting under a trust

This requirement was recognised much earlier under S9 of the Statute of Frauds 1677 which stipulated that all grants and assignments of any trust must be in writing otherwise it will be void and have no effect.

It has been established that the written requirement in S53(1)(c) LPA 1925 applies to personalty as well as to realty despite the definition of ‘equitable interests’ in s205(1)(x) of the Law of Property Act 1925 which refers to equitable interests in the context of land.

Grey v IRC is thought to be the authority for the proposition that a written document is required if the beneficiary of a trust instructs the trustees to hold the trust property for different beneficiaries. The rationale is that the divesting part of the transaction which results in the destruction of the original beneficiary’s interest must be regarded as a disposition. This is also consistent with S205 which states that a disposition includes a conveyance and conveyance includes a release.

In Vandervell v IRC where National Provincial Bank held the legal title to shares on behalf of Mr Vandervell were orally directed by Mr Vandervell to transfer the legal title of the shares to the Royal College of Surgeons and made it clear that he wanted to transfer his own beneficial interest it was held that this was a valid disposition because it was outside the S53(1)(c). Lord Upjohn in this case empasised the fact that the shares had been transferred by writing and that further writing under S53(1)(c) was therefore superfluous. The proposition was that no writing is required if the beneficiary instructs the trustees to transfer the legal title to the trust property out of the trust altogether.

If the beneficiaries assign the interests, the assignment is similar to contract and S53(1)(c) would apply

If the beneficiaries contract to assign the interests, this is not a disposition and S53(1)(c) would not apply : Oughtred v IRC. Here, shares in a trust fund were held on trust for Mrs O for life and then for her son. Mrs O held other shares of which she was the absolute owner. She agreed to transfer these to her son and he agreed to release his interest under the other shares to her. In order to do this three documents were executed: a transfer of the second shares to the son; a deed of release to the trustees who held the first shares; and a deed of transfer by the trustees of the first shares to Mrs O. Thus there was no document transferring the son’s interest to Mrs O and it was argued that no stamp duty was payable. This argument failed in the House of Lords, where it was held that the son’s equitable interest must have passed under the transfer of the legal estate by the trustees. This can be explained upon the basis that the transfer of the legal estate by the trustees amounted to a disposition of the equitable interest, which transfer would have to be in writing pursuant to Section 53 (1) (c). Later decisions suggest that an equitable interest can pass under a contract without any formality but it should be noted that the point does not appear to have been fully argued in some cases. See Re Holt’s Settlement and DHN Food Distributors Ltd v Tower Hamlets London Borough Council.

The question did arise in the recent case of Neville v Wilson where the CA decided that an informal agreement relating to the liquidation of a company and the division of the company’s equitable interest in the shares of another company was not rendered ineffective by S.53 of the Law of Property Act 1925. Each shareholder’s agreement to the liquidation created an implied or constructive trust for the other shareholders. This decision would seem to confirm that an equitable interest can pass under a contract without any formality. As soon as a contract is formed, the assignor holds the equitable interest on constructive trust for the assignee, and s.53(2) states that s.53(1) does not apply to constructive trusts. This decision endorsed the dissenting argument by Lord Radcliffe in Oughtred v IRC where he stated that a constructive trust would have to be created to prevent unjust enrichment.

In the case of a bare sub trust the beneficiary is now a mere conduit between the trustee and the sub beneficiary and therefore drops out of the picture and this is in truth a disposition and must follow S53(1)(c) as explained by Battersby and strenghtned by the operation of the rule in Grainge v Wilberforce.

Summary

1. Declaration of new trust not an outright transfer – S53(1)(c) does not apply - Re Vandervell No. 2

2. Beneficiary instructs the trustees to transfer the legal title to the trust property out of the trust altogether to a new beneficiary. The old trust collapses and the beneficiary drops out. The new beneficiary also receives the equitable interest and becomes the new settlor. S53(1)(c) does not apply – Re Vandervell

3. Change trustee – S53(1)(c) does not apply

4. Declaration of bare sub trust – S53(1)(c) applies

5. Declaration of a sub trust – S53(1)(c) does not apply because the old trust collapses and a new trust is created - Grainge v Wilberforce

6. Where an equitable interest is disclaimed – this occurred in Re Paradise Motor Co Ltd where the Court of Appeal held that a disclaimer did not amount to a disposition under Section 53 (1) (c)

7. Nomination of a beneficiary under a pension fund or a life assurance
policy. In Re Danish Bacon Co Staff Pension Fund Trusts Megarry J took the view that the nomination of a beneficiary under a staff pension fund was not a testamentary disposition and neither did it fall within the ambit of s.53(1)(c). He stated that even if it did fall within the statutory provision, the formalities could be satisfied by two connecting documents. In Gold v Hill, the first claimant was named as a beneficiary under the life assurance policy of Gilbert. The first claimant alleged that, before his departure to Nigeria, Gilbert informed him of this fact and asked him to look after Gilbert’s wife and children if anything should happen to him, Gilbert. Gilbert died and a dispute arose as to the nomination. The claimants claimed that the nomination was valid. The defendant,who was the solicitor and executor of Gilbert’s will, alleged that the nomination created an equitable interest in favour of Gilbert and the instruction to the first claimant had the effect of disposing the equitable interest contrary to s.53(1)(c) of the LPA 1925. It was decided that the nomination did not transfer or create any interest until death and it was sufficient that the nature of the trust was communicated before death. There was sufficient communication of the terms of the trust to the first claimant. Further, prior to the death of Gilbert, there was no subsisting equitable interest which could be disposed of. Accordingly, there had been no attempt to dispose of an existing equitable interest contrary to s.53(1)(c).

References

T.G. Youdan Formalities for Trusts of Land and the Doctrine in Rochefoucauld v Boustead

Graham Battersby Formalities for the disposition of equitable interests under a trust

Constitution of a Trust

Every inter vivos gift must comply with the complete and perfect requirement. - Justin Santiago

The complete and perfect requirement refers to constituting a trust which is vesting of the rights which form the subject matter of the trust in the intended trustee. Once it is constituted the beneficiaries of the trust can enforce it against the trustee. A gift will fail if the giver can not, or does not, take the appropriate steps to divest himself of the legal title.

How is a trust constituted?

a. Title to land which is unregistered – execution of deed – S52LPA1925, S2LP(MP) 1989
b. Title to land which is registered – trustee will be registered as the proprietor
c. Chattels - conveyed by either deed or delivery
d. Shares - executed an instrument of transfer of shares in the form required by the company’s articles and registered with the company SS182, S183 Companies Act 1985 and Stock Transfer Act 1963
e. Chose in action – S136 LPA 1925
f. Equitable interests – S53(1)(c) LPA 1925

The general rule about constituting a gift is found in Milroy v Lord - equity will not assist a volunteer to perfect an imperfect gift consistent with the inability to enforce gratuitous promises promises not supported by consideration under common law.

Historically there have been only two ways to create a trust. Either:
(1) the intending settlor declared the trusts and actually transferred the assets to the trustees (or did everything in his power, according to the nature of the property, to transfer the property to the trustees); or
(2) he constitutes the trust with himself as the trustee of the property.

Milroy v Lord holds that an imperfect attempt to create a trust using a third party as trustee will not be interpreted as a declaration by the settlor himself as trustee. The argument here is that there must be an expression of intention to become a trustee which is different from an intention to give over property to another : Richards v Delbridge.

Courts have frequently been called upon to exercise their equitable discretion, and rescue a gift that has failed for some reason or other and will not intervene to create one for him except in the following situations which would result in a constructive trust :-

Exceptions to the rule in Milroy v Lord

1. Detrimental Reliance – if it can be shown that there was a representation, reliance, detriment then proprietary estoppel will step in to order the perfection of the imperfect gift/trust from the moment the assurance is given : Dillwyn v Llewelyn, Pascoe v Turner.

The purported transferor will hold the promised right on constructive trust for the intended donee. However it could be argued that in the alternative the donor could be compelled to make good the donee’s loss (compensation) or to give up his own gain (restitution).

2. Re Rose - there was a defect in the share transfer process –everything has been done to transfer the legal title and this is a question of fact. If so then the gift is effective despite the lack of a valid transfer of title. The legal sleight-of-hand that makes the Re Rose principle work is that, once the donor is committed to transfer the legal title, he is deemed to hold the legal title on constructive trust for the recipient. However for a constructive trust to apply there must be a requirement of ‘unconscionability’. In Pennington v Waine where the donor had manifested an immediate and irrevocable intention to donate shares to another and had instructed her agent to execute the transfer, the donor was not be permitted to deny the interest acquired by the donee even though there was no unconscionability on the part of the donor but the courts felt it would be unconscionable on the part of the donee to be denied his interest as argued by Abigail Dogget in her article "Explaining Re Rose : The Search Goes On". This is a worrying trend since it would complicate the maxim that equity will not assist a volunteer and turn it into equity will not assist a volunteer only if it was not unconscionable.

3. Donatio Mortis Causa or Death Must Cure- conditions for the operation of the rule found in Cain v Moon although not complying with the Wills Act 1837 :-

a. Gifts must be in contemplation of the owner’s death “settled, hopeless, expectation”' of (relatively imminent) death, even if there has not been an adequate transfer of legal title : Re Craven’s Estate.
b. Donor must intend for gift to go back to him if death does not occur – similar to a bare trust situation
c. The gift has to be physically passed on

4. The rule in Strong v Bird - when a testator makes his debtor the executor the debt is automatically released although not made by deed and was merely a bare promise not to sue however this is balanced by the intention to relieve the debt and the intention continued until the testatrix death

5. The rule in Re Ralli’s WT- unperformed promise by deed to give had not been performed during the lifetime of the promisor – enough to constitute the covenanted for trust by virtue of being appointed executor of the promisor’s will

6. The rule in Choithram v Pagarani

Choithram v Pagarani set up a foundation and transferred the legal title to the foundation which is different from vesting the trustees with the legal title.

- it was argued that the foundation does not exist in English law and and that the legal title was not transferred and therefore the trust failed
- however the counter argument were the words “ I give to the foundation” could only mean “I give to the trustees of the foundation trust deed to be held by them”
- however the settlor himself being a trustee and the settlor vesting the legal title in himself puts the situation squarely in the middle of the two historical methods of creating a trust which is for the settlor to declare himself as trustee or to vest the legal title to a trustee

Referencea

Abigail Dogget Explaining Re Rose : The Search Goes On
Judith Morris When is an invalid gift valid?

Substantive Requirements of a Trust

What are the the requirements to create an enforceable trust? - Justin Santiago

1. Substantive Requirements i.e. - 3 certainties - certainty of intention, certainty of subject matter, certainty of objects.

a. Certainty of intention

Whether there was certainty of intention is a question of fact, not a question of law. If the test for certainty of intention fails, there cannot be a valid trust, and the person to whom the property is transferred becomes the legal and beneficial owner.

The test of certainty of intention is "Can the words be construed as having the effect on the trustee’s conscience? Christian LJ in McCormick v Grogan.

The use of the word “wish” can be construed as being precatory i.e. exhibiting a desire which only has the effect that the trustee acts according to his conscience which would merely amount to an allegation of a trust : Re Adams & Kensington Vestry.

Also the word “trust” does not necessarily imply a trust in the legal sense. For example, in Tito v Waddell the words “held in trust for” did not mean that a certain legal obligation was to be imposed. Where certainty of intention is evidenced by conduct, the conduct must manifest a clear intention to deal with the trust property in the form of a trust Re Kayford 1975 although, again, no reference need be made specifically to a trust

The modern approach does not look at words alone to determine an intention but conduct as well. It is not necessary that the settlor used the word “trust”', nor even that he knew what a trust was, provided the intention is clear. For example, in Paul v Constance 1976 the words “This money is a much yours as mine”, combined with the behaviour of the settlor, were held to be sufficient to find that a trust had been created.

Was the intention to transfer rights? Failed attempts to transfer rights cannot be construed as a self declaration of a trust – Richards v Delbridge.

If the court cannot distinguish between an intention to benefit another and an intention to create a trust, then the result is that neither of these outcomes will obtain, and the property will remain with the settlor : Jones v Lock.

b.Certainty of subject matter - there are two limbs to certainty of subject matter in order to ensure that there is holding of rights on behalf of another :-

i) the trust property must be certain
ii) the beneficial interest must be defined/ascertainable

Failure of a trust where relative words are employed in defining the property for example – a gift by a testatrix of “the bulk: of her residuary estate : Palmer v Simmonds and Re Kolb which concerned a direction to hold “blue chip securities” on trust. Also Anthony v Donges where the testator directed that his widow receive such minimal part of the estate as she might be entitled under English law was void for uncertainty.

Consequences of inability to identify trust rights would result in the recepient taking the rights outright : Palmer v Simonds the rationale is that the uncertainty as to subject matter feeds back into uncertainty as to intention to create a trust in the first place.

Note however the trend of courts to not take the too literal approach in Re Golay with regard to a trust to pay a reasonable income to a named beneficiary.

c.Certainty of objects

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 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 – re Astor’s Settlement Trusts. 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.

However whether the conferring of rights creates the enforceable duty is unclear as it may be possible for the settlor to nominate someone else to serve as the enforcer of those beneficiaries’ rights. In Re Denley, 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.