Secret Trusts Essay
“Fully explain and analyse the law relating to secret and half secret trusts and critically evaluate the following statement:
‘The enforcement of secret and half secret trusts demonstrates the equitable principle that statute and common law shall not be used as an engine of fraud and illustrates the willingness of equity to contravene statutory principles to achieve a result which the court considers to be in line with good conscience.’”
Introduction
In order to give full consideration to the issues arising in this question, this essay will first detail and analyse the law behind secret and half secrets, including the differences in their formation, validity and the consequences in the event that a secret trust fails. Next, the theory behind the equitable principles, particularly, statute and common law shall not be used as an engine of fraud, focusing on the principle’s application to secret and half secret trusts, will be discussed. From this, it will be seen that secret and half secret trusts do indeed demonstrate the function of the relevant principle, and that this to some degree does illustrate the willingness of equity to take a flexible approach to a reach a decision ‘in line with good conscience.’
However, the implications of the wording ‘good conscience’ will be disputed. It is contended that the application of the equitable principle does not exactly exhibit the equity’s willingness to reach a decision ‘in good conscience’, but rather to reflect the true intentions of the parties. By the same token, it will be seen that this principle is not the only justification behind the enforcement of secret trusts, and that ‘dehors the will’ acts as an alternate theory. This justification does not rely on a ‘contravention’ of statutory principle. Ultimately, it will be concluded that this theory, while still is less convincing than the equitable principle, and is perhaps an attempt by some to downplay the significant role the equitable principle plays in enforcing secret trusts.
The nature and purpose of secret trusts
Secret trusts and half secret trusts are essentially testamentary trusts which operate outside the requirements of the Wills Act 1837. These can either be ‘fully’ secret or ‘half’ secret, and two types will later be discussed separately. By way of simple explanation, both kinds of secret trust essentially involve property being left in will without actually naming the person to whom the property is being left to. The property is held on trust by someone who has made a promise to the testator to hold the property on trust for the eventual recipient.
It is the ‘secret’ nature of these trusts which cause difficulty with their enforcement. By not naming the beneficiary or beneficiaries of the property, these gifts do not fulfil the requirements of section 9 of the Wills Act 1837 regarding the proper disposal of property on death. Section 9 states that, for a will to be valid, it must be in writing, signed by the testator and witnesses by two persons. These requirements are intended to ensure that wills constitute a clear record of how the estate should be distributed after the testator’s death. Hence, in keeping with a strict view of the statute, secret trusts are not validly created.
In order to understand why the courts would permit the enforcement of these trusts, it is important to discuss the rationale behind their use. The overriding purpose behind secret trusts is to enable property to be left in a will without explicitly naming who the property is being left to by a bequest to a person who has previously promised to hold that property as trustee for the intended recipient. As wills are, by nature, public documents open to scrutiny, the concealment of identity that a secret trust provides is vital for those desiring a degree of privacy in the final disposal of their estate. Watt writes that the secret trust may initially have been created in response to the worries of men wishing to make provisions for a mistress and illegitimate children, and it was in reaction to this that the judges of the Chancery division permitted the creation of secret trusts, despite the lack of formality required by the Wills Act.[i]
Hudson comments that ‘there is a problem in categorising the secret trust.’[ii]. They are often categorised amongst express trusts, while Hudson, for his part, argues they are better described as constructive trusts ‘because they are imposed on the recipient on the testamentary gift where that person knows in good conscience that she is required to hold that property on trust for someone else.’ It may easier to classify them as testamentary trusts, as they arise upon the death of the testator, and are specified in the will.
Before going on to consider the two theories that underpin the enforcement of secret trusts, the law behind the formation and validity of both fully and half secret trust will be explained and analysed.
The creation and validity of fully secret trusts
The first type of secret trust to be examined is a ‘fully’ secret trust. A fully secret trust involves property being left by a testator to a legatee as a gift on the face of the will, without explicitly stating that the legatee holds the property on trust for a separate part. Thus, the property seems to have been left as an outright gift: for example, the will may read ‘To Mrs Jones, I leave my jewellery’, with Mrs Jones taking on the role of trustee.
Establishing a valid fully secret trust: the three requirements.
Ottoway v Norman[iii] details with the three requirements for a valid secret trust to be created. It stated that there firstly must be an intention to create a trust, second, a communication of that intention and, lastly, acceptance of the trust obligation. Each of these will be discussed in turn.
Kasperbauer v Griffith[iv] illustrates the necessity of intention. The testator declared in front of his family that he would bequeath his house and sum of his pension benefit to his wife on the condition that the money would be used to discharge the mortgage on the house. He stated that the house was to be sold within one year of his death and then that the sale proceeds should be divided between his children from his previous marriage. His wife did not speak during or after this declaration. Sometime after this, the testator made a will differing from this earlier declaration which left everything to his wife, to the exclusion of his children. The children alleged that their father has created a fully secret trust because, at the time of the declaration in front of his family, he had said that his wife ‘knew what she had to do.’ However, this argument was unsuccessful. The testator’s words were vague and only provide a moral obligation to his wife, not a legal one and the change in the will was evidence of this.
As well as setting out the requirements of a valid fully secret trust, Ottoway v Norman[v] highlighted, in particular, the significance of the communication of intention requirement. It made clear that while the exact date of the informal agreement is not relevant, it is essential that the precise object of the trust was communicated clearly to the trustee, and that the trustee then accepted the trust during the settlor’s lifetime. Ottoway left property in his will to Miss Hodges upon the understanding that she would in turn bequeath this property to the claimant in her will. When Miss Hodge failed to do so, the claimant brought an action against the executor’s of Miss Hodge’s estate alleging entitlement to the property left by Ottoway. On the facts, Miss Hodge was aware of Ottoway’s intention and had agreed to it. Thus the property that was clearly identified passed to the claimant.
When the trustees are co-owners, it is essential that the trust is communicated and accepted by each co-owner individually, unless they are joint tenants, where the acceptance of one will suffice. In the case of Re Stead,[vi] there were two trustees, but the testator only informed one of their intentions. This trustee was bound by the trust, while the uninformed trustee took free of the obligation.
Following these rules, a fully secret trust will be invalid if its object is uncertain. It was established in Re Boyes[vii] that a testator has to communicate both their intention to establish the fully secret trust and the terms on which the property is to be held to the trustee. In this case, Boyes made a gift in his will to his executor, his solicitor having already requested that the executor accepted that instruction to hold the gift on trust, but had not actually communicated the names of those beneficiaries. Their names were not discovered in a letter until after Boyes’ death, thus the object was not clear at the time of communication and acceptance. The trust failed as it was not made clear what the trustee was instructed to do with the property. Watt notes that ‘the secret trust would have been valid if, before he died, Boyes had placed a sealed envelope containing detailed instructions into the executor’s hands. That would have constituted constructive notice of the trust to the executor and the executor would be deemed to have accepted the trust.’[viii] This idea of ‘constructive delivery’ was first approved in Re Keen.[ix]
The intention to create a trust and its terms can be communicated in writing, orally or even by an agent. In modern terms, this means communication can take place in email or text message. The communication can take place either before or after the will is drafted, as established in Moss v Cooper.[x]
Additionally, Moss v Cooper[xi] provided further guidance on the acceptance of the terms of the secret trust by the trustee. It was stated in Ottoway v Norman[xii] that the acceptance could be express or by acquiescence. This requirement was elucidated further by Wallgrave v Tebbs[xiii] wherein it was held by Wood VC that where the intended trustee ‘expressly promises’ or ‘by silence implied’ that they accept the obligation they become bound by it. Moss[xiv] is an interesting illustration of the application of this condition; here, the secret trustee who had been informed of the testator’s intentions then informed the other two trustees. The trusteeship was expressly by one, while the other remained silent and the court held that this silence amounted to acceptance. What is most significant here was that it was clear that they knew of the existence of their obligation but failed to physically object.
An area within fully secret trusts that has sparked some debate is the time at which the trust itself actually comes into being. In general, it is assumed that the trust is created upon the testator’s death, wherein legal title passes to the secret trustee. However, Alastair Hudson observes that there is ‘alternative authority’[xv] from Romer J in Re Gardner.[xvi] It was held by Romer J that the gift is created at the date of the will, not on the date of the testator’s death. However, Hudson indicates that this decision ‘cannot be correct in principle because the will could have been altered subsequently, thus revoking the gift.’[xvii] It is suggested that this decision was in fact, in isolation and it is accepted that it is possible for the testator to later alter their will, meaning that the trust is created subsequent to death.
It has been further noted by Watt that fully ‘secret trusts are not recognised lightly’[xviii] regarding the burden upon claimants attempting to prove the existence of these trusts. The beneficiary claiming under the trust must prove that what the testator formally provided by his will is not what he actually intended to provide, but judicial opinion is divided on the …appropriate standard of proof.’ This is certainly true; for a claimant who contesting a will based on the testator’s intentions, the standard of proof is high, and it was indicated by Brightman J in Ottoway v Norman[xix] that a similarly high standard should be applied to an individual claiming that they are entitled under a secret trust. However, following Sir Robert Megarry VC in Re Snowden,[xx] the ordinary civil standard of proof on the ‘balance of probabilities’ is most likely sufficient on the assumption that the claimant has not acted fraudulently.
In Re Snowden,[xxi] the residue of a testatrix’s estate was left to her brother who she had lived for the last six months of her life. Her brother died six days later, leaving his son as sole beneficiary. Just fewer than twenty relatives challenged his sister, the testatrix’s will, alleging that her brother had received the legacy on secret trust for them. Part of the evidence was a solicitor’s note which suggested that that she meant to leave legacies to her relatives and that her brother was to divide up the remainder of the estate. A point of discussion was the burden of proof upon the claimants. The court held that he standard of proof for establishing a valid secret trust was the same ordinary civil standard of proof, and following this, that the claimants lacked sufficient evidence to prove that the testatrix intended impose a legally enforceable trust upon her brother.
The failure of a secret trust: the consequences for the property
If these three conditions, specifically intention, communication, and acceptance are not satisfied, the secret trust will not be held as valid. Following this failure of the trust, there is the question of what will happen to the property. In a fully secret trust, there are two possible scenarios.
The first is that if the intended secret trustee was not aware of the trust, they will be able to the property for themselves. The second circumstance exists where the intended trustee was aware that the property was going to be left to them to hold on trust, but had no knowledge of the purpose of the trust. In this case, they are not permitted to keep the property. The legatee will then hold the property on resulting trust back to the estate.
The rationale behind these consequences is that the intention and communications have not been complied with. The legatee is thus not bound to pass the property on to the intended beneficiary. In the second scenario, wherein the legatee understood that they were never intended to keep the property, it is in the interests of their conscience to prevent them from keeping the gift. Equally, it has not been proven that the property was to be passed onto the intended beneficiary, so the rules of intestacy apply and the property falls back into the testator’s estate.
An example of this is Re Boyes.[xxii] The residue of the testator’s estate was left to his solicitor who had been instructed to hold it on trust, but no information was provided as to the purpose or intended beneficiaries. The solicitor did not acquire the details of the trust terms until after the testator’s death. Thus, despite the solicitor’s readiness to perform the terms of the secret trust, it failed, and it was held that he held the property on resulting trust for the estate.
Important distinctions: Half-Secret Trusts
In half-secret trusts ‘the terms of the will make it clear that the legatee is to hold property on trust, but the terms of the trusts upon which he is to hold the property are not disclosed.’[xxiii] They are perhaps best explained in their differences to fully secret trusts. Firstly, as articulated above, it is stated that the property is to be held on trust, unlike fully secret trusts where this is not mentioned in the will. While this is the most important distinction between the two types, Viscount Sumner in Blackwell v Blackwell[xxiv] has stated that in substance there is no relevant difference between fully secret and half secret trusts because the ‘fraud’ committed are the same in both situations; ‘in both cases the testator’s wishes are incompletely expressed in his will. Why should equity, over a mere matter of words, give effect to them in one case and frustrate them in the other?’[xxv]
Blackwell v Blackwell[xxvi], described by Watt as a ‘classic instance of a valid half secret trusts’[xxvii] is the basis for another noteworthy requirement regarding half secret trusts. Namely that in half secret trusts, the communication must occur before, or during the time of, the execution of the will. In this case, the testator left a legacy which in total amount to £12,000 to five people by a codicil to their will and instructed that the income should be applied for the purposes ‘indicated by me to them’, with provision to apply two-thirds of the amount to such person or person indicated by me to them. The identities of the beneficiaries were orally communicated to the secret trustees and one of them had been given more detailed directions by the testator. The validity of the half secret trust was challenged by the testator’s wife who claimed that the whole of the sum was hers. However, the House of Lords held that as the trustees agreed to the terms of the trust prior to the execution of the codicil, the evidence of the oral arrangement proved the existence of a valid half secret trust. This rule has subsequently been followed in Re Bateman WT.[xxviii]
Watt argues that it follows from this that the risk is of fraud is ‘much greater’[xxix] in full secret trusts than in half secret trusts, and that, contrary to Viscount Sumner, ‘in fact, on closer examination, it appears that the two types of secret trust rest on entirely different conceptual foundations.’[xxx] He submits that this is down to timing of communication as illustrated by Re Bateman WT[xxxi]; a fully secret trust does not need to comply with any time restriction and can be created before or after the will, whereas a half secret must precede the execution of the will if it is to be held as valid. This is a crucial distinction for half secret trusts, as if the will refers to a trust that has not yet been communicated, it will not be able to take effect as a half secret trust, but instead becomes a void attempt to dispose of the estate.[xxxii]
Also, It is essential that the terms of the intended trust are consistent with the later will. In Re Keen[xxxiii], the testator, Keen, gave a sealed envelope to the intended trustee and they knew that the envelope contained the name of a woman to whom Keen was not married even though he did not open it until after Keen’s death. After this, Keen executed his will and it only made references to disposition that may be made after the will’s execution – it did not make mention of the trusts already created. Thus, even though the trust was communicated and agreed to before the execution of the will, the fact that it was not properly incorporated into the will meant it was void. The half secret trust could not be valid as the trustees were unaware of the intentions of the testator.
Additionally, in half secret trusts, if there is more than one trustee, all the trustees need to be told of the testator’s intentions, and if this is not done, the trust will fail for lack of communication and acceptance.
The failure of a half secret trust: consequences for the property
Half secret trusts are, again, distinguishable from fully secret trusts in regards to the consequences of their failure. In half secret trusts, in situations where the intended secret trustee had no knowledge of the trust they may keep the property. This is not possible in half secret trusts: unlike fully secret trusts, intention is obvious as it is stated in the will. It would thus be unconsciousable to let an informed trustee keep the property. If a the three requirements are not met, communication did not take place before or at the time of the will or all the trustees are not informed, the trust will fail and the property will revert back to the testator’s estate.
Enforcing Secret trusts through the equitable principle: ‘statute and common law shall not be used as an engine of fraud’
Having detailed the types of secret trust and outlined the formalities required for them to be valid, this essay will now turn to the enforcement of secret and half secret trusts using the equitable principle that statute will not be an instrument of fraud. This will involve a brief explanation of the equitable principles before turning to their application to secret trusts.
During the nineteenth century, the courts developed the twelve principles, or maxims, of equity, when administrating its equitable jurisdiction. These act as general guidelines as to the operation of equity, rather than operating as strict rules. Broadly worded, and flexible in their application, their unique character is described somewhat expressively by Simon Gardner, who writes that the principles ‘possess a pecularliarly Delphic quality, wrapped as they are in metaphor, grandly unqualified, and acknowledging no authority but transcendent wisdom’.[xxxiv]
The equitable principles address a wide range of situations, from providing guidance on equity’s relationship to the common law in ‘equity follows the law’, the conduct expected of claimants in ‘he who comes to equity must come with clean hands’, as well as the exact operations of equity, in ‘equity looks to substance over form’.
The relevant principle, ‘statute and common law shall not be used as an engine of fraud’ was developed by the courts to prevent the taking advantage of statutory formality provisions, this equitable principle essentially aims to allow equity to intercede if a claimant attempts to rely unconsiousably on a lack of statutory formalities It was held initially in Rouchefoucauld v Boustead[xxxv] that legal formalities will not be demanded by the court if they are used in an attempt to commit a fraud and the principle has thus been used to disregard a formality in order to give effect to the trust.
Application of the principle to secret trusts ‘in good conscience’
Undoubtedly, this principle is of great importance to the enforcement of secret and half secret trusts, and as seen above, it had been used by the courts to reach a fairer decision than statutory or common law formalities would allow. As articulated earlier in this piece, the difficulty faced in the creation of secret trusts that this permits this section of the Wills Act 1837 to be used as an engine of fraud against the testator as the trustee may claim the property for themselves in fully secret trusts. Through the application of this equitable principle, validity is granted to the secret trust, as confirmed by Lord Hatherley LC in McCormick v Grogan.[xxxvi] This is otherwise known as ‘the fraud theory.’
The theory first came to light in Katherine, Duchess of Suffolk v Hereden[xxxvii]. It was held by the court that Hereden was bound by the promise he made to the Duke of Suffolk to take ownership of his estate for the benefit of the Duchess, his wife. This decision was reached on the basis that a strict reading of the statute would allow Hereden to evade his obligations under this promise. In McCormick v Grogan[xxxviii], the terms of instructions of to the secret trustee made clear that they were not to be acted upon strictly and that he was to use his own judgement, so the trust failed as it was a moral as opposed to a legal obligation. However, Lord Hatherley LC used this case to make it clear secret trusts are imposed to prevent the defrauding of a testator by a trustee, as the property was left to the trustee in reliance of the promise to carry out the testator’s wishes.
Yet, there are difficulties with the application of this principle; many questions are not fully answered. Who exactly is it that would be defrauded if the trust were to fail on a statutory formality? The testator in that their intentions are disregarded or the intended beneficiary in that the gift left to them falls to another? J E Penny concludes that the case law discussed above has developed in such a way to indicate that ‘the only fraud necessary is the legatee’s refusal to carry out his agreement with the testator’,[xxxix] the agreement being to carry out he terms of the trust in line with the testators’ intentions.
In support of the assertion that this equitable principle allows the enforcement of secret trusts in good conscience, Watt states that ‘secret trusts are not only useful in their own right; they provide a useful analogy and precedent for anyone attempting to find a way around testamentary formalities’.[xl]
The equitable principle applies to a variety of instances in trusts wherein it would not be just to deny the existence of the trust, such as Bannister v Bannister.[xli] In this case, Ms Bannister conveyed a house to her brother in law, who then orally agreed to allow her to live in it rent free as long as she wished. He subsequently then attempted to evict Ms Bannister, and as the agreement was not in writing as required by section 53(1)(b) of the Law of Property Act 1925, it was legally unenforceable. However, this equitable principle was employed to rule that the agreement was enforceable as a constructive trust, notwithstanding the fact that it was oral, and Ms Bannister was a tenant for life. To use the Law of Property Act 1925 to defeat Ms Bannister’s beneficial interest would be a fraud. Hence it appears that the principle does go some way to allowing the courts to reach decisions they find in ‘good conscience.’
Equally, Emma Warner-Reed cites the example of section 37 of the Matrimonial Proceedings and Property Act 1970. Under this section, a spouse who makes a substantial financial contribution to improve a property is treated as then acquiring a share in its beneficial interest, whether or not they have a legal interest. The Act does not apply to cohabitees; hence equity provides that a contributing cohabitee is entitled to an interest in the property under a constructive trust. Warner-Reed however does not characterise this as equity contravening the law, but ‘‘plugging the gap’ where the law makes no provision for a particular set of circumstances, as opposed to overriding the law as it already exists.’[xlii]
Warner-Reed’s description of ‘plugging the gap’, although arguably somewhat linguistically blunt, is perhaps a more accurate depiction of the principle’s operation than the assertion than ‘in good conscience.’ Good conscience implies a level of imposing morality that the court does not reach. Certainly, the McCormick[xliii] trust failed on the basis that it was a moral obligation alone. The principle that equity will not be an engine of fraud is applied to uphold secret trusts to ensure that the testator’s wishes are complied with as far as possible, but the three requirements of intention, communication and acceptance ensure that the equity is retrained from making decisions purely because it ‘considers them in line with good conscience.’
By way of illustration, in Kasperbauer v Griffith[xliv], the court refused to uphold a fully secret trust in favour of the testator’s children as the words used to communicate the trust to his wife were only sufficient to impose a moral, not legal, obligation, upon his wife. A clear distinction between the two is made in this case, and equity was not used to insist on a trust here. It could be strongly contended that, it would, in fact, be in better ‘conscience’ to ensure that the children were provided for, but the court did not do so. The principle does not seek to ‘contravene’ statutory principles simply to reach a fair or moral decision, but to reflect the reality of the agreement between the testator and the secret trustee, almost as if it were a contractual arrangement.
Likewise, in Re Keen[xlv], it could be said that it would be in ‘good conscience’ to uphold the trust as had been communicated and accepted, and it need not matter that the will did not refer to it. However, the court was not willing to disregard the importance of the will in this case; it will not ‘contravene’ statutory principle in every situation, whereby the trust terms are not certain.
To deny the existence of an agreement between the testator and the intended trustee would be to commit a fraud, and, providing the trust complies with the requisite conditions, unrealistic to uphold a strict reading of statute to allow the trust to fail. As previously stated, another equitable principle says ‘equity follows the law’ – in the event of conflict, equity may circumvent the common law but it does not seek to override it. It only intervenes if there is a risk of an unconscionable result, like the denial of a testator’s wishes. As Hudson notes ‘the purpose of equity is to introduce fairness in circumstances in which statute might permit unfairness[xlvi]’ thus is not surprising that the Courts have applied the principle to secret trusts in this way.
An alternate (but weaker) theory: dehors the will
However, it is false to state that is solely thus equitable principle that enables the enforcement of secret trusts. An alternative theory is that they arise, dehors, or, outside of the will. It was stated by Danckwerts J in Re Young, in holding a secret trust valid, that in fact ‘the whole theory of the formation of a secret trust is that the Wills Act has nothing to do with the matter.’[xlvii]
This theory fundamentally argues that the trust is affirmed inter vivos, that is to say during the testator’s lifetime, and not through the will, and the will is merely is formalisation of the transfer. It thus follows the trust is created dehors the will and is not opposing Wills Act. Diana Kincaid writes that ‘traditionally the basis of the enforcement of secret trusts was said to be fraud’[xlviii] but maintains that dehors the will is now ‘the currently accepted view.’[xlix] Likewise, John Mee states quite absolutely that ‘the doctrine of half-secret trusts operates dehors the will.’[l]
However, for the most part, the majority of modern academic thought is in opposition to the au dehors theory. Kincaid notes, quite correctly, that ‘the secret trust does not operate completely independently. To say that a secret trust exists outside the will is to give a false impression.’[li] In response to the argument that the trust falls inter vivos, outside the scope of section 9 of the Wills Act, Critchley comments that “this construction of the facts seems a little implausible, since the average testator in a secret trust case arguably believes that he is stating the trusts on which his property will be held after his death, rather than declaring an immediate trust.’[lii]
Furthermore, J E Penner bluntly states that the ‘the dehors the will theory is fundamentally unsound[liii]’. He argues this theory relies upon the establishing that secret trusts, to fall out of the remit of the Wills Act, are not actually testamentary dispositions at all, thus the Act’s formalities need not apply, which is factually untrue. Secret trusts are testamentary dispositions as the testator can revoke the trust at any time before death by communicating with the secret trustee, by destroying the will or creating a new one. These trusts are imposed over property that is only ascertained upon the administration of the estate and are subject to the will’s rules on abatement and ademption (essentially the potential failure of the gift) like any other. There are, thus, by their very nature, testamentary. Penner potentially edges towards the truth when he comments that ‘the dehors the will theory is just an attempt to cloak the embarrassing jam equity has got itself into with its willingness to flout the Wills Act.’[liv]
Critchley unquestionably favours the fraud theory as a justification for the enforcement of secret trusts, writing that ‘where a fully secret trustee actively seeks to deny the trust and keep the property beneficially, the fraud maxim may present a fairly good argument in favour of enforcing the informal trust, provided that the standard of conduct required to show fraud is maintained at a sufficiently high level.’[lv]
Conclusion: ‘A more flexible and useful tool.’
While the origins of secret trusts are old, they are, are Meryl Thomas notes ‘far from obsolete.’[lvi] An exploration of the law has revealed that the two types, fully and half secret trusts, must fulfil three requirements before they can be held as valid, and if they do not they shall fail. The consequences are thus that the intended trustee may be allowed to keep the property in the case of full secret trusts, or that the gift will revert back to the estate. Equally, secret trusts by their very formation do not comply with the Wills Act 1937. If the courts were to take the statute upon face value, the intended beneficiary in either secret or half trusts would never receive the property left to them.
In response to this, the courts have endeavoured to honour the intentions of the testator. One way this is done, as the stimulus question suggests, is to apply the equitable maxim ‘that statute and common law shall not be used as an engine of fraud.’ Case law shows that indeed, this is evidence of the ‘willingness of equity to contravene statutory principles to achieve a result which the court considers to be in line with good conscience.’
However, this statement should not be interpreted in such a way so as to imply that the courts will bend the rules to reach a more moral decision: the court applies this equitable principle to reflect the testator’s wish to have their estate distributed in a certain way. It may not, for argument’s sake, be of ‘good conscience’ to leave a larger amount of property to a mistress than to a wife. This is not equity’s concern. It may be better stated that the principle exhibits the willingness of equity to contravene statutory principles, or ‘plug the gap’ that the Wills Act 1837, now almost two hundred years old, has left to achieve a result which the court considers to be line with the testator’s true intention.
Moreover, it has been shown that the equitable principle is not always used to justify the enforcement of fully and half secret trusts. There is a school of thought who argues that these trusts operate entirely outside of the will, thus there is no need to consider fraud. The author of this piece, in line with Penner and Critchley, finds this theory somewhat unconvincing[lvii]. Secret trusts are of a testamentary nature, too linked to the will document itself to fall outside of its scope, and it feels like an attempt to avoid facing the reality of the importance of an equitable maxim to support this theory.
It is submitted overall that stimulus question is partially correct, but requires rephrasing. The equitable principle that statute and common law shall not be used as an engine of fraud is one of two justifications behind the enforcement of secret and half secret trusts. While this thesis prefers the fraud theory, the debate has not been entirely settled. Additionally, this use of the principle illustrates the willingness of equity to contravene statutory principles to achieve a result which the court considers to be in line within the original spirit of an agreement if statute does not allow for this.
Of course, in one sense, it would indeed not be in ‘good conscience’ to deny a testator the ability to distribute their estate as they see fit. As the case law shows, the requirements ensure that secret trusts are guided by more than equity; the rules regarding intention, communication and acceptance confirm that the wishes of the testator can be properly followed. The fraud theory allows the distribution of the estate to reflect the testator’s wishes in so far as it is possible. It is situations such as this that equity is designed to protected. By applying this principle, the court can address each secret trust on its own unique facts and circumstances, and, certainly, as Watt states, ‘in the exercise of discretion, a principle or maxim is a more flexible and useful tool than a rule.’[lviii]
Word Count: 5,997
Bibliography
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Bannister v Bannister [1948] 2 All ER 133
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Blackwell v Blackwell [1929] AC 318
Comiskey v Bowring-Hanbury [1905] AC 84
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Locking v Parker [1873] 8 LR Ch App 30
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Gardner S, ‘Two Maxims of Equity’ (1995) 54 (1) Cambridge Law Journal 60
Kincaid D, ‘The tangled web: the relationship between a secret trust and the will’ [2000] Conveyancer and Property Lawyer 420
King L ‘In Practice: Legal Update: Probate: Secret and half-secret trusts’ (2014) Law Society Gazette 27
Mee J, ‘Half Secret trusts in England and Ireland’ [1992] Conveyancer and Property Lawyer 202
Thomas M, ‘The longer you look at a [will], the more abstract it becomes…” – construction and secret trusts: Rawstron and Pearce v Freud’ (2014) 1 Trust Law International 157
[i] Gary Watt Trusts and Equity (4th edn, OUP, 2010) 180.
[ii] Alastair Hudson Understanding Equity & Trusts (9th edn, Routledge, 2015) 70.
[iii] [1972] 2 WLR 50.
[iv] [2000] WLTR 333.
[v] N 4.
[vi] [1900] 1 Ch 237.
[vii] [1884] LR Ch D 531.
[viii] N1, Watt, 181.
[ix] [1937] Ch 236.
[x] [1861] 4 LT 790.
[xi] Ibid.
[xii] N 4.
[xiii] [1855] 2 K & J 313.
[xiv] N 11.
[xv] N 2 68.
[xvi] [1923] 2 Ch 230.
[xvii] N 11, Hudson, 69.
[xviii] N 1, 183.
[xix] N 4, Brightman J, 712.
[xx] [1979] Ch 528, 536.
[xxi] Ibid.
[xxii] N 8.
[xxiii] Lesley King ‘In Practice: Legal Update: Probate: Secret and half-secret trusts’ (2014) LS Gaz 8.
[xxiv] [1929] AC 318.
[xxv] Ibid, 328.
[xxvi] N 25.
[xxvii] N 1, 182.
[xxviii] [1970] 1 WLR 1463.
[xxix] N 1 ,181.
[xxx] Ibid.
[xxxi] N 29.
[xxxii] N 1,181.
[xxxiii] N 10.
[xxxiv] Simon Gardner ‘Two Maxims of Equity’ (1995) 54 (1) CLJ 60, 61.
[xxxv] [1897] Ch 196.
[xxxvi] [1869] LR 4 HL 82.
[xxxvii] [1560].
[xxxviii] N 36.
[xxxix] J E Penner The Law of Trusts (9th edn, OUP, 2014), 176.
[xl] N 1 (Watt) 184.
[xli] [1948] 2 All ER 133.
[xlii] Emma Warner-Reed, Equity and Trusts, (Pearson, 2011) 9.
[xliii] N 37.
[xliv] N 5.
[xlv] N 10.
[xlvi] N 2 (Hudson) 71.
[xlvii] [1951] Ch 344, 350.
[xlviii] Diana Kincaid ‘The tangled web: the relationship between a secret trust and the will’ [2000] Conv 420, 421.
[xlix] Ibid.
[l] John Mee, ‘Half Secret trusts in England and Ireland’ [1992] Conv 202
[li] N 42 (Kincaid) 442.
[lii] Patricia Critchley ‘Instruments of fraud, testamentary dispositions, and the doctrine of secret trusts’ 115 L.Q.R.1999 631, 641
[liii] N 40, 177.
[liv] Ibid, 178.
[lv] N 52 (Critchley) 653.
[lvi] Meryl Thomas ’The longer you look at a [will], the more abstract it becomes…” – construction and secret trusts: Rawstron and Pearce v Freud’ (2014) Tru. L.I. 157, 161.
[lvii] See N 53.
[lviii] Garry Watt, Todd & Watt’s Cases & Materials on Equity and Trusts, (9th edn, OUP, 2013) 480.