Constitution Formalities M

Question 1 2019

Lucy declared a trust in writing of 75 shares in a private company, with Ethel as sole
trustee and Fred as sole beneficiary. Lucy sent the declaration of trust to Ethel, along with
a completed share transfer form, and the share certificates. Ethel put the declaration,
transfer form, and certificates in her wall safe.

Fred then orally agreed to sell his interest under the trust to Ralph for £50,000. Ralph
orally declared that he held any interest he received from Fred on trust for Alice. Alice
orally assigned her interest under this trust to Norton.

What difference, if any, would it make if the shares were in a public company?

The trust created by Lucy was inter vivos. Therefore, the issues are creation and
enforcement. The enforcement issue is related to the case of Milroy v Lord. Question arises
on whether settlor has done everything within her power to effect the transfer of the legal
title to the trust. On the facts, it was not done. Hence, it is not enforceable.
Question arises on whether settlor failed to do what is required or was the transfer
not done due to intervention of a third party. In Pennington v Waine, settlor appoints a
trustee and has done what is required by a settlor. Court intervenes to prevent
unconscionable result. However, later cases of Curtis v Pullbrook and Zeital v Kaye had
shown the tendency the court to restrict the wide discretion of Pennington. Lord Nichols in
RBA v Tan held that the word “unconscionable” should be best avoided, Prof Penner also
suggests that such word is vague and ambiguous.
In Choithram v Pagarani, the settlor is one of the trustee of the trust that was already
in existence. The declaration was done.
In accordance with Milroy v Lord, if the transferor has done everything required of
him and the only things remaining to be done are to be performed by a third party, the
transfer is effective in equity. This is known as “last act” principle. The donor has completed
the last act that may be achieved by him. This will be sufficient to transfer the equitable
interest in the property to the donee. In these circumstances the donor who retains the legal
title to the property holds it as a trustee for the donee. This is a constructive trust created by
operation of law.
It should be noted that Pennington v Waine principle is distinct from the traditional
Re Rose principle. In Pennington, the court proceeded based on “unconscionability” on the
part of the donor to deny that a transfer took place. This is a fairly broad concept and
involves a question of law for the court to decide in its discretion as opposed to the narrow
Re Rose which is a question of fact as to whether donor had done everything required of
him to effect the transfer.
Unconscionability can involve a promise made by donor, relied by done to his
detriment. In such circumstances, court will prevent donor from denying the promise and
reclaiming the property as his own. Therefore, using these discussion, we can argue that E is

This study source was downloaded by 100000833106183 from CourseHero.com on 05-20-2023 15:33:13 GMT -05:00

https://www.coursehero.com/file/176009730/constitution-formalities-Mdocx/
 the trustee of a constructive trust. He is holding legal title and equitable interest in favour of
F.
F then orally agrees to sell his interest under the trust to R for €50000. If Ralph has
paid the money, as a consideration, there is a contract between F and R. Question arises on
whether it is a normal contract or special contract. A special contract would normally involve
the sale of land. Per S2(1) LP(MP)A 1989, such contract must be done in writing. Question
arises on whether the sale of equitable interest is subject to S53(1)(c)LPA 1925. The purpose
of S53(1)(c) is to prevent hidden transaction and prevent unknown third parties from
asserting a claim over the rights of another. Besides, to protect trustees from the hidden
transaction. When a trust comes to an end, being a bare trust, trustee needs to
know, who is the owner of the equitable interest. This is because only the right owner of the
equitable interest can be entitled to the legal title or estate. If the trustee has transferred
the legal title to a wrong person, the trustee can be sued for breach of trust.
In Oughtred v IRC, the taxpayer and her son owned the entire beneficial interest in
the shares of a company. She agreed to transfer of other shares to him in return for his
interest in the shares. The Revenue contended that there must be a deed giving effect to the
transaction releasing the interest in the trust shares and that was subject to ad valorem
stamp duty. It was held that stamp duty was payable on documents only. Nevertheless, the
transfer gave effect to a transfer within section 54 of the 1891 Act and was liable to ad
valorem duty despite the low nominal consideration expressed in it.
Strictly following the ratio of this case, there is no valid disposition of equitable
interest on the facts because F only orally agreed to sell his equitable interest.
On the other hand, Lord Jenkins in obiter stated that “The constructive trust in
favour of a purchaser which arises on the conclusion of a contract for sale is founded upon
the purchaser’s right to enforce the contract in proceedings for specific performance. In
other words, he is treated in equity as entitled by virtue of the contract to the property
which the vendor is bound under the contract to convey to him”. It is submitted that the
obiter dicta od this case have been followed in various decision of Neville v Wilson and DHN
Food Distributor v Tower Hamlets. These would allow us to proceed.
However, it is submitted that the constructive trust arguments will only be applicable
if the remedy required is specific performance. This would depend on the subject matter of
the transaction. Therefore, the obiter can only apply if the shares are in a private company
and not in a public company.
The next issue is R orally declared that he held any interest received from F on trust
for A. he is declaring a trust of the equitable interest in favour of A whilst the main trust was
subsisting, he is the trustee. It is a sub trust in favour of A. (Grainge v Wilbeforce, Re
Lasmar).
Question arises on whether R is having any active duties within the sub trust and
have his duties as a trustee of the sub trust come to an end. The correctness of the case of
Grainge and Re Lasmar have been doubted in the cases of Nelson v Greening & Sykes and Re
Lehman Brothers International (Europe) where Briggs stated that “When an intermediate
trustee makes a declaration of trust of their equitable interest, they do not deprive
themselves of that interest but simply create a second equitable interest held by the sub-
beneficiary.’
*sub-trust will not attract any formality if the subject matter involves pure
personality, an oral declaration of the sub-trust is sufficient. If the subject matter is land,
then sub-trust is required to be evidenced in writing complying S53(1)(b) LPA 1925.

This study source was downloaded by 100000833106183 from CourseHero.com on 05-20-2023 15:33:13 GMT -05:00

https://www.coursehero.com/file/176009730/constitution-formalities-Mdocx/
 In Nelson v Greening & Sykes, COA concluded that the earlier authorities on
“dropping out” were merely stating that the head trustee might decide as a practical matter
that it was more convenient to deal directly with the beneficiary of the sub-trust rather than
the intermediate trustee. Webb and Akkouh then made the point that “Given that a
declaration of trust of your equitable interest does not deprive you of that interest but
simply creates a second equitable interest held by the sub-beneficiary, one may expect that
this does not involve any disposition of a subsisting equitable interest and hence does not
require writing and signature to be effective (unless of course it is a sub-trust of land or a
testamentary sub-trust, in which case s53(1)(b) of the Law of Property Act or s9 of the Wills
Act would apply).”
Thus, a declaration of sub-trust is not a disposition of the intermediate trustee’s
equitable interest and so does not need to satisfy S53(1)(c). This is certainly the wider
interpretation of Nelson, which is also consistent with the view adopted by Lord Radcliffe in
Oughtred v IRC which assumes that a bare contrastive trustee of a subsisting equitable
interest remains “in the picture” until completion of the transaction which removes them
from it.
JE Penner advises that Nelson is ‘strong authority for dismissing the [bare trust/active
duties] distinction, disapproving as it does the automatic dropping out of the picture of the
sub-trustee.’ This view also finds some support in the remarks of Dixon J in Comptroller of
Stamps (Victoria) v Howard Smith [1936], (High Court of Australia).
So far as Nelson decision is concerned, there is an important policy argument that
distinguishing between active/passive sub-trust is illogical. Nelson favours the view that
S53(1)(C) will not be applied in such case because this sub-trust creates a new equitable
interest rather than disposition of an existing interest, regardless whether intermediate
trustee has active/passive duties under the sub-trust. However, there are also a strong
argument for retaining S53(1)(C) where an intermediate trustee declares a sub-trust of their
equitable interest.
Thus, the oral declaration of sub-trust is not valid if it involves land and since it is only
for shares, can we submit it is valid.
A then orally assigned her interest under trust to N. Grey v IRC.

This study source was downloaded by 100000833106183 from CourseHero.com on 05-20-2023 15:33:13 GMT -05:00

https://www.coursehero.com/file/176009730/constitution-formalities-Mdocx/
Powered by TCPDF (www.tcpdf.org)