How important is the beneficiary principle in contemporary trust law

The beneficiary principle was further explained in Morice v Bishop of Durham, which enabled the beneficiary to control the trustees’ actions, by brings any disputes before the court. This case is were many identify as the beginning of the beneficiary principle and that the idea of control is a central concern for the courts. Without the existence of the beneficiary, the trustee actions may be uncontrollable and constitute a purpose trust, because the benefit was not for specific objects and would be for an abstract purpose. It was held that without objects a trust cannot be enforced, because no one would have locus standi to be able to enforce the trust if the trustees did not carry out their duty. This requirement for the existence of a beneficiary was confirmed in Leahy v Attorney-General for NSW. Recently the courts have found that as long as there is some direct or indirect benefit for ascertainable beneficiaries, then a matter can be brought before the court.

Graham Moffat said about Vautier, that it is said to be “based on public policy, preferring the interests of beneficiaries over the specified intentions of the trust founders”. It seems that the court did not want to expand because they feared the interests of the settler could diminish and the some of the judiciary had an orthodox approach to the idea of trusts. Hayton says it is not clear why the case was decided in that way, perhaps at the time it was due to public policy or as a “subsequent rational”, but the “constraints” imposed by the rule are apparent. In other jurisdictions, such as the United States, this principle has not been accepted, because a settlor’s intentions are important, and can be dismissed lightly. In nineteenth century England, it was not clear in what direction cases were going and the doctrine of binding precedent was not introduced until the late nineteenth century, until there was a number of clashes in the cases, such as in  Re Dean where the money was held on trust for horses and hounds. This was severly criticized by a number of scholars, such as Barnard Russell, who said that “once you start treating animals as right-holders, the next thing you know, it’s votes for Oysters”. They did not see animals as having any rights and it was not until the twentieth century that the court ruled that Morice was binging law. Confirmed in Re Astor, where the court found that a purpose trust for non-charitable purposes, is not recognized in English law, even though in the case it may have been ethical to do so. Morice was read on its very literal meaning of the beneficiary principle.

If a trust is not for the benefit for ascertainable beneficiaries, then it amounts to an abstract purpose trust, which is void under English Law, because there is no beneficiary to enforce the trust. This was done to prevent continuation in perpetuity because it would be a drain on the economy, as capital would not be free to circulate. The interest of the public at large was taken into consideration by the courts. However there are two exceptions to the beneficiary principle, such as the anomalous cases and in tradition to charities. This led to the dispute between the fine line between purpose trusts and peoples trust. Traditionally, as discussed above, a literal interpretation was taken in regards to the beneficiary principle, which had to end in a reasonable period of time. In Leahy, Viscount Simonds expressed that any trust property that might not be within the time period, would “tend to be perpetuity and therefore… void”. This doctrine became known as the “slaughter of innocents”, because cases where the trust should have amounted to a good trust were found not to, simply because they did not fall into the strict category of the beneficiary principle.

 A peoples’ trust is a trust that has identifiable beneficiaries, with a specific purpose, which satisfies the beneficiary principle. A purpose trust on the other hand does not have identifiable beneficiaries and has an abstract purpose in general, which cannot amount to a good trust, which professor Hayton defined as “[p]ermitted non-charitable endowment purpose trusts [are] void unless from the outset they are certain to terminate by the end of the perpetuity period”. There is much conflict between these two concepts especially between the cases of Leahy and Re Denley. Leahy was held to be a purpose trust, because in the case the charity did not have a public benefit to amount to a charitable trust, despite the very close relationship between the cases. It was found to be a non-charitable purpose trust on the literal interpretation and therefore was for an abstract purpose, rather than for the benefit of specific individual beneficiaries, which Viscount Simonds held was a void purpose trust, because it was group of nuns rather than an identifiable group; it included those that would become nuns in the future, which meant no specified perpetuity period, therefore breaching the rule against remoteness; no one person would be able to take immediate possession of the land.

Whereas in Re Denley it was found to be a valid trust. Where lord Goff suggested that the trust for employees was similar to discretionary trust, as it had a practical benefit, therefore constituted a ‘peoples’ trust, because it had some identifiable humans. He wanted this trust to pass because the settlor's intention was clear and because it was a common type of trust, which he saw as a good policy reason to exist. Furthermore he pointed out that because a purpose trust cannot exist in English law, for it to be a valid trust, it had to be a peoples trust, because it benefited individuals and had an object, in the interest of the employees. He does not see this as offending the “mischief of the beneficiary principle”. It is sufficient therefore that the beneficiaries take indirect benefit, which according to Goff satisfies the beneficiary principle. In contrast Viscount Simmond had seen the requirement that the people who had the right to possession, would take it immediately, to amount to a valid trust. Despite the close approximation of the two cases, the suggestion that seems to come across is that as long as there is a benefit for a define class of people, and then an objective trust can be enforceable.

It has been suggested that the reason the two cases were decided differently was perhaps because the two judges in the case cam from two different generations, therefore had different ideals.

However the correctness of Leahy was questioned in a number of following cases, such as Lipinski’s Will Trusts by Oliver J, who saw that members of a club constituted a sufficient beneficial class, because they controlled the capital of the trust fund. However the judiciary seem to fear an economic consequence, therefore limited the class to the individual benefit for a trust. This raise disputes in cases where there was no express intension for the individual benefit, even thought the purpose of the trust was for people indirectly. Despite this apparent unfairness, the court seems to still apply the stricter rule in many cases. Oliver j. did not see why a gift should fail. He saw the transfer of control of capital as being equal to the transfer of an absolute title or a gift. He took the interpretation of the beneficiary principle to a wider interpretation than seen in Re Denley, and was also considered to be a young judge, like Lord Goff. Oliver J suggested that the principle should include clubs and society cases, for the purpose of association, because it was a valid people’s trust.

There are a number of cases where purpose trusts have been held to be valid trusts on their facts and it was made clear no other anomalies will be permitted, such as in Re Endscott, where it seemed the judges were reluctant to avoid trusts in situations where a settler could not amend his trust provision. Cases concerning animals, maintenance of graves and monuments, catholic masses and for the purpose of fox-hunting also did not fit into the beneficiary principle. It seems these cases were decided differently because the judges were aware that these abstract purpose trusts had to come to an end at some point and perhaps it was ethical to allow the gravestones to be erected. The Perpetuities and Accumulations Act 1964 set out clauses to ensure that trusts came to an end, generally after eighty years under section 1 of the Act and section 3 provides a ‘wait and see’ approach to trusts.

Since McPhail v Doulton, the policy justification and the authority of the beneficiary principle has come under much scrutiny, which was an important case, because it showed that the tests for all trusts was too stringent and too many trusts were failing. It introduced the pragmatic approach of the test of administrative workability and focused on enforcement rather than ownership, because previously it was thought that only the beneficiaries could enforce the trust, and were also the owners of the trust. It drew a distinction between discretionary and fixed trusts, which should have different tests. The judiciary had realized that a progressive approach was needed, with a more open policy. McPhail is significant in that it marked a forward thinking approach by many of the judges, and a move away form the literal approach of settlor’s intensions, such as in regards to people and purpose trusts.

A number of cases have suggested that ownership is not the key, such as in Scott v National Trust, where it was suggested that anyone who had an interest in the trust should be able to challenge the actions of trustees, as well as in the case of Schmidt v Rosewood Trustwhere again the court confirmed that not only the beneficiary can enforce a trust, because they implied that there was no need to prove that you are the owner of the trust before you have the right to enforce it. Recently the Bermuda Star Trust has been introduced, which allows the beneficiaries to remain anonymous, so that they do not have to appear at all. This is seen to facilitate the commercial market, but this has caused many problems in countries like Bermuda, because it has an effect of distorting the beneficiary principle. This has lead to questioning the meaning of ownership, which seems to fit well into fixed trusts, but not into discretionary trusts.

The main reason it seems that the rules on perpetuities were so stringent was so that capital would not be tied up and would be free to move around in the economy, as a well as the fact that England was expanding as a trading nation, so needed to “facilitate the transfer of land and thus create an open market in the real property”, which automatically saw a change in the judicial attitude, as there was a change in the cultural environment.

It is difficult to identify one approach as the correct one to the beneficiary principle, because all cases differ in context, even thought some cases have an intention, but still are found not to benefit any ascertainable people. Only valid people trusts fit into the beneficiary principle, weather it is directly or indirectly.

 

Bibliography

1. Hudson, Equity and Trusts, 4th Ed, London: Cavendish. (2005).

A.J Oakley, Contemporary Trust Law, Clarendon Press, Oxford, Published in USA. (1996).

Graham Moffat, Trust Law: Text and Materials, 4th edition, Cambridge University Press, United Kingdom, (2005).

Graham Moffat, Trust law: A Song Without End? Vol. 55, p.123-139, (1992).

D. Hayton, Developing the Obligation Characteristic of the Trust, (2001).

E. H. Burn, Trusts and Trustees Cases and Materials, 5th edition, Butterworths, (1996).

Jill E. Martin, Modern Equity, 15th edition, Sweet & Maxwell Ltd, (1997).

Samantha Hepburn, Principles of Equity and Trusts, Cavendish, (1997).

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