A trust for a purpose that will benefit the public is generally considered a charitable trust. However, trusts are sometimes created for a private purpose. These are called private purpose trusts or trusts of imperfect obligation. They have been described by Matthews as ‘non-owned vehicles’.[i] Many of these trusts fail because of a lack of human beneficiary or individual who can enforce the trust.[ii] Private purpose trusts have been upheld for maintenance of specific animals, the saying of masses, and for monuments and tombs. They have also been upheld where the court can find a direct or indirect factual beneficiary in whose favour the court can decree performance or as a Quistclose trust. Therefore, the first aim of this paper, is to support the assertion in the stimulus quotation that ‘it is a complete myth that English Law does not recognize trusts for private purposes’. Private purpose trusts continue to have legal, social and commercial importance. Therefore, the second aim of this paper is to advocate that the law should recognise these trusts albeit that the law should be reformed to inject much needed certainty into the law.
Beneficiary Principle
For a trust to be valid ‘it must be for the benefit of ascertainable individuals’.[iii] These beneficiaries have locus standi to bring proceedings against a trustee and in whose favour the court can grant performance of the trust.[iv] This is known as the beneficiary principle in trusts law. The rule can be traced to Morice v Bishop of Durham[v] (although some writers believe the rule predates this case)[vi] where William Grant MR held that ‘[e]very other [non-charitable] trust must have a definite object’.[vii] In Re Wood the court held that a ‘gift on trust must have a cestui que trust’.[viii] In Re Endacott[ix] the court held that ‘[n]o principle perhaps has greater authority behind it than the general proposition that a trust, not being a charitable trust, in order to be effective, must have ascertained or ascertainable beneficiaries’.[x]
Linked to this point – the law will not recognise a trust intended for a purpose ‘since the benefits of carrying out a purpose cannot be localised to specific individuals.’[xi] As there is no beneficiary for purpose trusts the property reverts back to the testator or if deceased his estate.[xii] Further, while charitable trusts can be enforced by the Attorney-General there is no enforcer, in the absence of beneficiaries, to enforce private purpose trusts.[xiii] However, there are occasions where courts have upheld private purpose trusts. The next part of this paper will examine one species of such trust: the anomalous exceptions to the beneficiary rule.
Anomalous Exceptions
There are various exceptions to the beneficiary principle. Charitable trusts are an obvious exception. However, there are also a collection of specific exceptions that have been ‘born of history rather than logic’.[xiv] They have been described as ‘occasions when Homer has nodded’[xv] in the sense that they are wrong but are not to be remedied. They have also been described as ‘concessions to human weakness or sentiment’.[xvi] They include trusts for erection and maintenance of monuments, tombs and graves, trusts for saying masses, and trusts for the maintenance of specific animals. These are a closed list of exceptions and will not be added to.[xvii] These trusts have been upheld by the courts even though they ‘remain unenforceable in the sense that the trustee cannot be compelled to perform the terms of the trust if, for whatever reason, he is unwilling to do so’.[xviii]
A trust which seeks to benefit animals generally can be upheld as a charitable trust.[xix] However, trusts for the purpose of marinating and caring for specific animals have also been upheld as private purpose trusts.[xx] In Pettingall v Pettingall a bequest of £50 per annum for the benefit of the testator’s black mare was upheld. The Court was persuaded by the fact that the executor had indicated he was amiable to carrying out the testator’s wishes. In Re Dean a testator left £750 per annum to be used for the maintenance of his horse and hounds for as long as they live. This case has been criticised. The court arrived at its decision by considering the animals as lives in being for the purposes of the perpetuity rule. However, this was at odds with received authority that ‘life’ meant ‘human life’ for the purposes of the rule.[xxi] Further, it was unclear who could enforce the trust.[xxii] In Re Haines the court affirmed that a ‘life’ could mean an animal life when assessing compliance with the perpetuity rule. The authorities in this area do not speak with one voice. There has been judicial criticism also and in one case the court held that a more pragmatic approach would be to pay the income to the keeper until the animals in question died.[xxiii]
In Musset v Bingle[xxiv] a testator gave £300 to executors to erect a monument and this was upheld as a private purpose trust. The court did not directly address the perpetuity question but in upholding the trust must have assumed that the monument would be built inside the perpetuity period. A gift for a specific graves or graves can be upheld as private purpose trust as long as the gift is restricted to the perpetuity period. In Re Hooper a trust to provide for graves was given to trustees ‘so far as they can legally do so’. This was upheld as this phrase meant the perpetuity period was satisfied. A similar result was achieved in Pirbright v Salwey[xxv] where the words used were ‘so long as the law allows’. In this case, the trust was upheld despite the fact there was clearly no-one that could enforce the trust. Further, it is possible to avoid having these gifts classified as private purpose trusts by making a donation to the upkeep of the churchyard or cemetery generally and therefore making the bequest charitable.[xxvi]
Trusts for saying masses in public were historically void in England[xxvii] and were at times considered illegal,[xxviii] although they were upheld in other jurisdictions such as Ireland.[xxix] Today these trusts can be charitable if the property is utilised to provide endowments to priests saying mass.[xxx] However, these trusts can also be valid as private purpose trusts.[xxxi] However, this area of law is problematic as the courts have engaged in any extensive consideration of the rationale for upholding these trusts.[xxxii] The courts have also upheld trusts for the purpose of commemorating the testator in an Asian sin chew ceremony.[xxxiii] The existence of these anomalous exceptions supports the first argument of this paper that it cannot be said that English Law fails to recognise private purpose trusts.
Re Denley
In Re Denley’s Trust Deed,[xxxiv] land was given as a gift for the benefit of company employees and other person who the trustees allowed the land to be used by. On the face of it, this was a private purpose trust. However, the Court held that the private purpose trust was valid. Goff J held that ‘though expressed as a purpose…it seems to me that it is in general outside the mischief of the beneficiary principle.’[xxxv] The judge indicating that it was critical that the trust was ‘directly or indirectly for the benefit of an individual or individuals’.[xxxvi]
There are two schools of thought pertaining to the rationale behind the case. First, and most prevalent, is the view is that Goff J decided to upholds the trust as there were ascertainable beneficiaries with standing to sue as long as the benefit they receive is not too abstract.[xxxvii] If this view is preferred, then the case ‘breaks no new ground’.[xxxviii] A second view states that the trust was a trust for individuals and was not examined through the lens of a private purpose trust at all.[xxxix] This view has judicial support in Re Grant’s Will Trust[xl] where Vinelott J stated that ‘[t]hat case [Denley] on a proper analysis, in my judgment, falls outside the categories of…purpose trusts.’[xli] Further, the decision is problematic. It is unclear whether the factual beneficiaries in these cases are capable of changing i.e. applying to future members.[xlii] This approach is used in relation to employee benefits trusts.[xliii]
After Denley, the courts have adopted a benign approach to recognising purpose trusts as benefitting individuals directly or indirectly. The Denley approach has been extended to gifts to unincorporated associations.[xliv] It has also been applied to proceeds of the sale of land to be used as a clubhouse which was deemed to be for the benefit to a club and its members.[xlv] It has even been applied to cover a gift for the maintenance of private roads on a country estate for the benefit of its residents.[xlvi] Most controversially, the Denley rationale may be responsible for upholding Quistclose trusts.[xlvii] In this case directors took a loan to pay a dividend and this was paid into a discrete bank account. The company went into liquidation and the House of Lords held that the lender had an equitable right to have the money used for the dividend payment. As this purpose could not be achieved, the funds returned to the lender on trust. The House of Lords subsequently suggested that the rationale behind the decision was that there was a factual beneficiary i.e. the lender and therefore the trust was valid.[xlviii] However, it is noteworthy that this approach has also received scathing judicial criticism.[xlix] What these cases show is that the courts take a more liberal approach to upholding private purpose trusts than has traditionally been the case.
The case remains that private purpose trusts in their purest sense, lying outside the exceptions created by the courts, will not be upheld.[l] However, the courts have adopted a benign approach to recognising certain trusts as can be seen from the previous discussion. More conservative views that these exceptions were recognised only in very limited circumstances[li] have been eroded. Therefore, it cannot be said that English Law does not recognise trusts for a purpose. The next part of this paper will put forward the argument that such trusts should be recognised but that reform is needed in this area to provide legal certainty.
In Defence of Private Purpose Trusts
The validity of private purpose trusts are contained within sensible limited. These trusts can fail for want of certainty.[lii] In addition, they must not be created for a capricious purpose.[liii] Further, they need to ‘vest no later than 21 years after some life in being at the creation of the interest’.[liv] They are not something to be feared. Brown notes that the private purpose trust continues to be an important vehicle for testamentary gifts.[lv] These trusts have practical significance and therefore the law needs to be more certain in order that practitioners can adequately advise.
There is also an argument that changes in society, such as the growing importance of animals and pets, mean that reform is needed.[lvi] One criticism of the current law is that it has stifled the commercial world where such transactions such as special purpose vehicle (SPV) trusts need to be upheld.[lvii] They are also regularly used in ‘international project financing, securitisation transactions, off balance sheet transactions, escrow agreements and security arrangements’.[lviii] They can also be used as a vehicle for holding shares in a family owned company.[lix] They have also been exported internationally as vehicles in the financial free zone of the United Arab Emirates.[lx]
The common law approach at present suffers as ‘[t]he line drawn by common law and hence the courts distinguishing between invalid purpose trusts and valid (non-charitable) person trusts is indeed a very frail one’.[lxi] For example, in Re Abbott Fund Trusts a trust was created to provide for two deaf sisters. The court considered this a private trust although it could be argued this was for a purpose. Many purposes will also be for the benefit of people. One possible reform route is to create a statute that allows purpose trusts to be upheld as is the case in jurisdictions such as Jersey and the Seychelles.[lxii] Statutory reform would provide clarity. This would prevent the current law from being abused. For example, in Re Thompson[lxiii] a bequest of £1,000 was upheld to promote fox-hunting as a private purpose trust using creative means by showing that the residual legatee could enforce the trust if the £1,000 was not spent as the testator had intended. The statute could provide for a deed system that allows such trusts to be upheld[lxiv] without having to comply with the patchwork quilt of common law rules.
Conclusion
Private purpose trusts are an important part of trusts law. They are being used in an ever increasing number of ways to respond to changes in society. English law has recognised anomalous exceptions to the beneficiary principle as well as upheld private purpose trusts where there is a factual beneficiary or enforcer. These trusts should be upheld because of their practical utility but reform is required in order to enhance the level of certainty in this area of law. This should be in statutory form which would avoid the need to use the difficult body of common law in this area as a point of reference.
2191 words.
List of Cases
Barclays Bank v Quistclose Investments Ltd [1970] AC 567
Bourne v Keane [1919] AC 815
Brown v Burdett (1882) 21 Ch D 667
Carreras Ltd v Freeman Mathews Ltd [1985] Ch 207
Grender v Dresden [2009] EWHC 500 (Ch).
Mitford v Reynolds [1848] 16 Sim 105
Morice v Bishop of Durham (1805) 10 Ves 522
Musset v Bingle [1862] WN 170
Pettingall v Pettingall (1842) 11 LJ Ch
Pirbright v Salwey [1896] WN 86
Re Astor’s Settlement Trust [1952] Ch 534
Re Denley’s Trust Deed [1969] 1 Ch 373
Re EVTR [1987] BCLC 646
Re Grant’s Will Trust [1979] 3 All ER 359
Re Khoo Cheng Teow [1932] Straits Settlement Reports 226.
Re Lipinski’s Will Trusts [1977] 1 All ER 33
Re Dean (1889) 41 Ch D 552
Re Eighmie [1935] Ch 524
Re Endacott [1960] Ch 232
Re Fleetwood (1880) 15 Ch D 594
Re Haines, The Times, 7 Nov 1952
Re Horley Town Football Club, Hunt v McLaren [2006] All ER (D) 34.
Re Hetherington [1990] Ch 1; Re Caus [1934] Ch 162
Re Howard, The Times 30 October 1908
Re Kelly [1932] IR 255
Re Moss [1949] 1 All ER 495
Re St Andrew’s (Cheam) Lawn Tennis Club [2012] EWHC 1040 (Ch)
Re Thompson [1934] Ch 342
Re Wood [1949] Ch 498
West v Shuttleworth [1835] 2 My. & K 684
Bibliography
Textbooks
Baxendale-Walker P, Purpose Trusts (Butterworths 1999)
Clements R and Abass A, Equity and Trusts: Text, Cases and Materials (4th edn, OUP 2015)
Oakley A (ed), Contemporary Trust Law (Clarendon Press 1996)
Panico P, International Trust Laws (OUP 2010) 562
Penner J, The Law of Trusts (10th edn, OUP 2016)
Watt G, Cases and Materials on Equity and Trusts (10th edn, OUP 2016
Journal Articles
Brown J, ‘What are we to do with Trusts of Imperfect Obligation’ (2007) Conveyancer and Property Lawyer 148
Davies CLI, ‘Trusts with a Purpose’ (1999) 1 Trusts & Trustees 8
Egerton-Vernon P, ‘Purpose Trusts’ (1998) 4 Trusts & Trustees 17
Evans S, ‘Only People and Horses’ (2010) 154(22) Solicitors Journal 16
Jamieson P, ‘Trusts for the Maintenance of Particular Animals’ (1985) 14(2) University of Queensland Law Journal 175
Matthews P, ‘Trusting on Purpose: The Trusts (Amendment no. 3) (Jersey) Law 1996’ (1997) 1 Jersey Law Review 110
Niegel J, ‘Purposeful Trusts and Foundations?’ (2012) 18(6) Trusts and Trustees 451
Parry NDM, ‘Trust for Masses’ (1989) Conveyancer and Property Lawyer 453
Panico P, ‘Private Purpose Foundations: From a Classic “Beneficiary Principle” to Modern Legislative Creativity?’ (2013) 19(6) Trust and Trustees 542
Pawlowski M and Summers Jo, ‘Private Purpose Trusts – a Reform Proposal’ (2007) Conveyancer and Property Lawyer 440
Russell D and Bognar G, ‘The Application of English Law in the Financial Free Zones of the United Arab Emirates’ (2017) 23(5) Trusts and Trustees 477
Sheridan L, ‘Trusts for Non-charitable Purposes’ (1953) 17 Conveyancer 46
[i] Paul Matthews, ‘Trusting on Purpose: The Trusts (Amendment no. 3) (Jersey) Law 1996’ (1997) 1 Jersey Law Review 110, 111.
[ii] Paoo Panico, International Trust Laws (OUP 2010) 562.
[iii] James Penner, The Law of Trusts (10th edn, OUP 2016) 110.
[iv] ibid.
[v] (1805) 10 Ves 522.
[vi] Paul Baxendale-Walker, Purpose Trusts (Butterworths 1999) 364; Paul Matthews, ‘The New Trusts: Obligations Without Rights?’ in Trends in Andrew Oakley (ed), Contemporary Trust Law (Clarendon Press 1996) 2.
[vii] ibid.
[viii] [1949] Ch 498, 501.
[ix] [1960] Ch 232.
[x] ibid 246 (Lord Evershed MR).
[xi] ibid.
[xii] Morice (n 5).
[xiii] Panico (n 2) 565.
[xiv] Matthews (n 6) 5.
[xv] Re Endacott [1960] Ch 232, 250.
[xvi] Re Astor’s Settlement Trust [1952] Ch 534, 545.
[xvii] Richard Clements and Ademola Abass, Equity and Trusts: Text, Cases and Materials (4th edn, OUP 2015) 104.
[xviii] Mark Pawlowski and Jo Summers, ‘Private Purpose Trusts – a Reform Proposal’ (2007) Conveyancer and Property Lawyer 440, 442.
[xix] Re Moss [1949] 1 All ER 495.
[xx] Re Haines, The Times, 7 Nov 1952; Re Dean (1889) 41 Ch D 552; Mitford v Reynolds [1848] 16 Sim 105; Pettingall v Pettingall (1842) 11 LJ Ch.
[xxi] Re Kelly [1932] IR 255.
[xxii] ibid.
[xxiii] Re Howard, The Times 30 October 1908.
[xxiv] [1862] WN 170.
[xxv] [1896] WN 86.
[xxvi] Re Eighmie [1935] Ch 524.
[xxvii] Re Fleetwood (1880) 15 Ch D 594.
[xxviii] West v Shuttleworth [1835] 2 My. & K 684.
[xxix] Lionel Sheridan, ‘Trusts for Non-charitable Purposes’ (1953) 17 Conveyancer 46, 52.
[xxx] Re Hetherington [1990] Ch 1; Re Caus [1934] Ch 162.
[xxxi] Bourne v Keane [1919] AC 815, 874-875.
[xxxii] NDM Parry, ‘Trust for Masses’ (1989) Conveyancer and Property Lawyer 453, 455.
[xxxiii] Re Khoo Cheng Teow [1932] Straits Settlement Reports 226.
[xxxiv] [1969] 1 Ch 373.
[xxxv] ibid.
[xxxvi] ibid.
[xxxvii] Gary Watt, Cases and Materials on Equity and Trusts (10th edn, OUP 2016) 60.
[xxxviii] ibid.
[xxxix] ibid.
[xl] [1979] 3 All ER 359.
[xli] 370.
[xlii] Pawlowski and Summers (n 18) 444.
[xliii] ibid.
[xliv] Re Lipinski’s Will Trusts [1977] 1 All ER 33.
[xlv] Re Horley Town Football Club, Hunt v McLaren [2006] All ER (D) 34.
[xlvi] Grender v Dresden [2009] EWHC 500 (Ch).
[xlvii] Barclays Bank v Quistclose Investments Ltd [1970] AC 567.
[xlviii] Carreras Ltd v Freeman Mathews Ltd [1985] Ch 207.
[xlix] Re EVTR [1987] BCLC 646, 651 (Dillon LJ).
[l] Re St Andrew’s (Cheam) Lawn Tennis Club [2012] EWHC 1040 (Ch).
[li] Philip Jamieson, ‘Trusts for the Maintenance of Particular Animals’ (1985) 14(2) University of Queensland Law Journal 175, 176.
[lii] Watt (n 37) 64.
[liii] Brown v Burdett (1882) 21 Ch D 667.
[liv] Johanna Niegel, ‘Purposeful Trusts and Foundations?’ (2012) 18(6) Trusts and Trustees 451, 455.
[lv] James Brown, ‘What are we to do with Trusts of Imperfect Obligation’ (2007) Conveyancer and Property Lawyer 148, 148.
[lvi] Steve Evans, ‘Only People and Horses’ (2010) 154(22) Solicitors Journal 16, 16.
[lvii] P Egerton-Vernon, ‘Purpose Trusts’ (1998) 4 Trusts & Trustees 17, 17.
[lviii] Niegel (n 54) 457.
[lix] ibid.
[lx] D Russell and G Bognar, ‘The Application of English Law in the Financial Free Zones of the United Arab Emirates’ (2017) 23(5) Trusts and Trustees 477, 478.
[lxi] CLI Davies, ‘Trusts with a Purpose’ (1999) 1 Trusts & Trustees 8, 8.
[lxii] Paolo Panico, ‘Private Purpose Foundations: From a Classic “Beneficiary Principle” to Modern Legislative Creativity?’ (2013) 19(6) Trust and Trustees 542, 545.
[lxiii] [1934] Ch 342.
[lxiv] James Brown, ‘What are we to do with Trusts of Imperfect Obligation’ (2007) Conveyancer and Property Lawyer 148, 158.