However, there are number of circumstances and exceptions (albeit limited) in which the beneficiary principle does not apply.
Exceptions to Beneficiary Principle: Valid but unenforceable Trusts
Usually, these exceptions are referred to as “trusts of imperfect obligation” or “unenforceable trusts” because the trustees cannot be compelled to carry them out. If the trustees are unwilling to perform the trust during the specified period of the trust (or, if none, the perpetuity period), or if there is a surplus after the purpose has been carried out, there will be a resulting trust for the settler’s estate.
A non-charitable purpose trust will only be valid if it falls within one of the few anomalous categories of cases that have traditionally been recognized by the courts. Such categories will not be extended and, if the trust falls outside those categories, it will fail. The categories of cases consist of:
-
Trusts for the erection or maintenance of particular graves and monuments which are not charitable, they may be upheld as a trust of imperfect obligation should it not continue beyond the perpetuity period. Before the Perpetuities and Accumulations Act 1964 was enacted, it was held in Re Chardon that a gift of a fund to trustees in trust to pay the income to a cemetery company during such period as it should continue to maintain certain specified graves, with a gift over on non-performance of the trust, did not to offend the rule against perpetuities and was a valid gift. In Musset v Bingle, the court held that a gift for the erection of a monument to the testator’s widow’s first husband was valid. Also, in Re Hooper, the court held that a gift to trustees for the care and upkeep of certain family graves and monuments “so far as they can legally do so” was valid for a period of 21 years.
-
Trusts for maintenance of specific animals may be effective as trusts of imperfect obligation. The trusts in Pettingall v Pettingall (an annuity for the upkeep of the testator’s mare during her life) and Re Dean (an annuity charge on land for a term of 50 years if any of the testator’s horses and dogs so long lived) were held to be valid. N.B. In Re Dean, North J did not treated animal cases as exceptions to the beneficiary principle, but dissented from the view that the court will not recognize a trust unless it is capable of being enforced by someone.
-
Trusts for the saying of mass privately and other religious purposes are not charitable. They may, perhaps, be valid unenforceable trusts provided they are restricted to the perpetuity period. In Re Khoo Cheng Teow, the court held that the gift be valid where money was to be applied during the perpetuity period to perpetuate the testator’s memory by the performance of certain ceremonies called sin chew.
-
Non-charitable trusts for other purposes have occasionally been upheld as valid trusts. In Re Thompson, the gift was upheld, the judge ordering the payment of the legacy to his friend upon his undertaking to apply it for the stated objects. Clauson J in this case refused to accept the argument based on Morice v Bishop of Durham that the trust was invalid, and indirectly enforced that trust in the usual way by requiring an undertaking from the trustee to apply the legacy towards the object expressed in the will.
As mentioned above, any cases falls outside the foregoing categories, the trusts will fail. Therefore, there are modern decisions which held that the non-charitable purpose trust to be void. In Re Endacott, the court held that a gift “to the North Tawton Devon Parish Council for the purpose of providing some useful memorial to myself” was not allowed. Harman LJ in the Court of Appeal commented that ‘…… there have been decisions at times which are not satisfactorily classified, but are perhaps merely occasions when Homer has nodded, at any rate these cases stand by themselves and ought not to be increased in number, no indeed followed, except when the one is exactly like another’. In Re Astor’s Settlement Trusts, the court held that the trust failed on the beneficiary principle as “concessions to human weakness and sentiment”. Furthermore, the court held that Re Shaw failed on the beneficiary principle on the grounds of unenforceability and uncertainty.
There are also several restrictions applied to those categories of exceptions.
-
The rules of perpetuity must be fulfilled. In Re Dean, a trust of imperfect obligation must be restricted to the perpetuity period, and if it is not it will be void.
-
For a trust of imperfect obligation to be valid, it will also have to be considered by the courts not to be useless, wasteful or capricious. In Brown v Burdett, the court held that the trust be void as rendering the property “useless”.
Circumstances the Beneficiary Principle Not Apply
It is apparent that a number of situations exist where trust are valid despite the absence of an equitable proprietary owners. In other words, the existence of a beneficiary with an equitable proprietary interest in the trust property may not be a necessary prerequisite to the enforcement of a non-charitable purpose trust.
In Shaw v Lawless, the court held that a mere indirect interest is not enough for the validity of such a trust. Therefore, for example, a trust for the education of the settlor’s daughter at a particular school would not give the headmaster standing to enforce the trust, even though it would indirectly benefit him. Also, Roxburgh J in Re Astor’s Settlement Trusts stated that ‘if the purposes are valid trusts, the settlers have retained no beneficial interest and could not initiate’. Therefore, indirect interest of a testator or settler to see that his wishes are performed is insufficient.
In Re Denley’s Trust Deed, Goff J held that a trust which though expressed as a purpose trust, is directly or indirectly for the benefit of an individual or individuals. Such trust is therefore outside the mischief of the beneficiary principle that every trust must have a certain cestui que trust. Accordingly, the court held that such trust was valid for the provision of a recreation or sports ground, during a period limited within the perpetuity period, for the benefit of ascertainable objects. In order words, the need for enforceability of such cases are met by the existence of factual beneficiaries (who, though not the actual cestuis que trust, are interested in the disposal of the property) and thus the beneficiaries principle does not apply.
Although the so-called ‘Denley principle’ permits contractual licensees to enforce the terms of the trust, it is difficult to discern where the beneficial ownership lies in such cases.
On a true analysis, there may be no trust in some circumstances, instead, the matter concerned is one of contract. In Conservative and Unionist Central Office v Burrell, where funds were contributed to a treasurer of the party to be used in a particular way. The court held that no trust arose, except the fiduciary relationship inherent in the relationship of principal and agent. Further, in Re Horley Town Football Club Hunt, the court held that the deed should be construed as a gift to the club as a contact-holding gift to the club and its members for the time being. The beneficial ownership was in the current full members and it was held on bare trust for them.
In Re Wood, Harman J held that a gift on trust must have a cestui que trust. However, there are several alternative approaches be used to uphold gifts for non-charitable purpose trusts without beneficiaries which are sufficient standing to compel performance of the trust.
-
In Re Lipinski’s Will Trusts, a gift to the Maccabi Association to be used solely in the construction of new buildings for the association was upheld on the basis that, although a gift for a purpose, it was directly for the benefit of the members of the Association. Hence, the gift can be construed as an absolute purpose to the individual membership, especially where the purpose is actually carried out by the members.
Vinelot J stated in Re Grant’s Will Trusts that the members could, by an appropriate majority, alter the rules of the association so as to divide the association’s assets amongst themselves. Also, in Hiranand, the court held that there could be certainty of beneficiaries even though the beneficiaries only became entitled to distribution on the occurrence of some contingency.
However, this principle will not operate where the class of beneficiaries is too wide and, therefore, administratively unworkable. The authority could be found in R v District Auditor, ex p WYMCC.
-
In Conservative and Unionist Central Office v Burrell forecited, contributions to the treasurer of the Conservative Party were upheld on the ground that they were subject to a mandate to use the monies in a particular way.
Conclusion
The beneficiary principle is of long-standing that non-charitable purpose trusts are void as having no ascertained or ascertainable beneficiaries capable of enforcing the trusts. However, the law would still allow trusts for non-charitable purposes to exist in certain occasions. Should the trusts fall within the categories of the exceptions stated above, including trusts for the maintenance of graves and monuments, trusts for specific animals, trusts for the saying of mass and trusts for some other specific purposes, they are ruled valid. Further, there are some situations that beneficiary principle does not apply, for example, in the cases of Re Denley’s Trust Deed and Re Lipinski’s Will Trusts.
Bibliography
- Equity and Trusts, by Professor Christopher J S Gale, ITC
-
Equity and the Law of Trusts, by Philip H Pettit Ma, OUP, 10th Edition
- C.P.E. Equity and Trusts course notes, by Paul S. Kent
- Non-charitable Purpose Trusts, by Christopher J G Parker, Tolley’s Administration of Trusts
- Journal of International Trust and Corporate Planning ITCP 8 4 (237), 1 Dec 2000
- Case References:
- Knight v Knight (1840) 3 Beav 148
- Morice v Bishop of Durham (1804) 9 Ves Jr 399
- Leahy v AG of New South Wales (1959) 2 All ER 300
- Ernst & Young v Central Guaranty Trust Company (No. 2) (2004) ABQB 389
- Re Wood (1949) Ch 498, 501
- Re Astor’s Settlement Trusts (1952) Ch 534
- Re Endacott (1960) Ch 232
- Re Chardon (1927) All ER Rep 483
- Musset v Bingle (1876) WN 170
- Re Hooper (1932) 1 Ch 38
- Pettingall v Pettingall (1970) AC 777
- Re Dean (1889) 41 Ch D 552
- Re Khoo Cheng Teow (1932) Straits Settlement Reports 226
- Re Thompson (1934) Ch 342
- Re Shaw (1957) 1 All ER 745
- Brown v Burdett (1882) 21 Ch D 546
- Shaw v Lawless (1838) 5 Cl. & Fin. 129
- Re Denley’s Trust Deed (1969) 1 Ch. 373
- Conservative and Unionist Central Office v Burnell (1982) 1 WLR 522
- Re Horley Town Football Club Hunt and another v McLaren and others (2006) EWHC 2386 (Ch)
- Re Lipinski’s Will Trusts (1976) Ch. 235
- Re Grant’s Will Trusts (1979) 3 All ER 359
- Hiranand and others v Harilela and other (2005) 8 ITELR 376
- R v District Auditors ex parte West Yorkshire Metropolitan County Council (1986) 26 R&VR 24