Robert Megarry and Equity - Four Cases considered.

by 08saglamy (student)

Sir Robert Megarry was regarded as a key academic in the field of equity. After WW2, Megarry pursued parallel careers as an academic and at the Chancery Bar. He lectured at Cambridge[1], directed the Law Society's refresher courses and most importantly taught equity at the Council of Legal Education (Bar School). It must be submitted that the cases of Re Montagu’s Settlement Trusts (1987)[2], Shepherd Homes Ltd v Sandham - [1970][3], Re Holt's Settlement; Wilson v Holt and Others - [1968][4] & Re Kayford Ltd - [1975][5] highlight the wide spectrum in which equity has been developed and applied by Lord Megarry.

Re Montagu’s Settlement Trusts (1987)

In Re Montagu’s Settlement Trusts (1987) Lord Megarry established that:

“Liability for knowing receipt requires proof that the defendant had knowledge of the breach of trust and received trust property with that knowledge. The knowledge must exist at the time of receipt.”[6]

It must be recognised that, at the time, more emphasis was put on whether there was any fault and whether failing to make enquiries or notice relevant circumstances may indicate fault, but this notion was improved by Lord Megarry in Re Montagu’s Settlement Trusts (1987). Lord Megarry stated that the recipient’s conscience must be affected and therefore constructive knowledge would not be enough, there must be some “want of probity”[7]. A similar approach is found in BCCI (Overseas) Ltd v Akindele (2000)[8] where Lord Nourse said, the question was whether the third party had enough knowledge that it would be unconscionable for them to retain the property received.

Lord Megarry established the notion of fault-based liability, despite previous authorities in favour of strict liability, most equity cases still emphasise that there must be fault on the part of the recipient; this includes without agreeing on the degree of fault required. In Re Montagu, Lord Megarry accepted that the recipient had to be guilty of dishonesty or, in terms of the Baden Delvaux scale[9] in the Baden & Lecuit case, he had to have knowledge of the defect in his entitlement at least at point three, wilfully and recklessly closing his eyes to the inquiries that an honest and reasonable man would make.

In addition, trustees had mistakenly misdirected trust assets to the then Duke of Manchester. Under the terms of the trust deed they should not have released those assets unless and until they had conducted an exercise of judgement to determine which should be added to the trust capital. The Duke did not keep them but realised them and spent the proceeds. Many years later, after his death, the persons now entitled under the trust sought restitution from the estate of the deceased beneficiary[10]. Lord Megarry held that the receipt by the deceased beneficiary had been absolutely innocent. But he went on to indicate that he would only have allowed the claim if dishonesty had been proved. This concept enhanced the original precedent on fault and equity in general.

Yet it must be acknowledged that there is a contrast in Re Diplock 1951[11] which is evident. The only substantial difference between the two cases appears to be that one is concerned with the administration of a deceased's estate and the other a family trust established inter vivos. It is not easy to see how that could explain the leniency shown to the Duke and the rigour of the earlier court's treatment of Guy's Hospital and the other charities. Nevertheless, the position taken by Lord Megarry has subsequently been adopted by prevailing judges and that the case of Re Montagu can be regarded as a unique and valid case.

Shepherd Homes Ltd v Sandham - [1970]

The company had bought and developed a housing estate in Glamorganshire. Each lease and conveyance contained a covenant prohibiting (inter alia) the erection of any fence or hedge in front of the building line. Early in September 1969, the defendant, who was the purchaser of one of the plots, on which he had built a house, erected a fence on his plot in front of the building line to prevent repeated incursions of sheep and some horses, which were causing considerable damage to his garden. On 11 September, the company's solicitors wrote to ...

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Shepherd Homes Ltd v Sandham - [1970]

On 23 October, the company issued a writ against the defendant seeking a mandatory injunction that he forthwith demolishes the fence erected in breach of the covenant. The company did nothing further until 25 February 1970 when it gave notice of motion in the same terms. By cross-motion, the defendant subsequently moved for leave to apply to the Lands Tribunal under the Law of Property Act 1925[13], s 84a, and a stay of proceedings against him in the meantime.

Injunctions were a serious problem in the rule of equity and brought consequences for their unorthodox application and it became part of the rule of equity not to grant the remedy only in cases where a right or title in equity was proved to exist.

It was understood that equity required a prima facie or a strong prima facie case to be established before a prohibitory injunction would issue[14]. With regards to a mandatory injunction a higher standard was needed. For a remedy to be exercised the requirement was that the defendant did a positive act, relief was usually withheld in the absence of an unusually sharp and clear case. This approach continued unbroken until Shepherd Homes Ltd v Sandham 1970[15].

Mandatory injunctions

In Shepherd Homes Ltd v Sandham [1970], Lord Megarry said:

“That an interlocutory mandatory injunction should not be granted, save in an unusually sharp and clear case. And our former Federal Court has accepted that to be the correct position. No longer”[16]

Lord Megarry emphasizes, it is another way of saying that the features which justify describing an injunction as ‘mandatory’ will usually also have the consequence of creating a greater risk of injustice if it is granted rather than withheld at the interlocutory stage unless the court feels a ‘high degree of assurance’ that the plaintiff would be able to establish his right at a trial.

Lord Megarry re-assembled this in two ways:

Semantic arguments over whether the injunction as formulated can properly be classified as mandatory or prohibitory are uninviting. The question of substance is whether the granting of the injunction would carry that higher risk of injustice which is normally associated with the grant of a mandatory injunction.

Cases in which there can be no dispute about the use of the term ‘mandatory’ to describe the injunction, the same question of substance will determine whether the case is ‘normal’ and therefore within the guideline of ‘exceptional’ and therefore requiring special treatment.[17]

There is no great reason to refuse to grant a mandatory injunction in such cases, so long as they at least included the details of the damage to the plaintiff and the existence of a disproportion between the detriment that the injunction would inflict on the defendant and the benefit that it would confer on the plaintiff; the basic concept was that of producing a fair result, and that involved the exercise of judicial discretion.

In court, Lord Megarry was far more reluctant to grant a mandatory injunction; in a normal case the court must, inter alia, feel a high degree of assurance that, at the trial, it will appear that the injunction was rightly granted; and this was a higher standard than was required for a prohibitory injunction.

Re Holt's Settlement; Wilson v Holt and Others - [1968]

The arrangement, for which the court's approval was sought on behalf of infants and unborn persons under the Variation of Trusts Act, 1958[18], was that the plaintiff should surrender her life interest in one half of the income of the trust fund (which had greatly increased in value since the date of the settlement), that the income of that half should be accumulated, and that the vesting of the interests of children in that half fund should be deferred until they respectively reached the age of thirty years. The arrangement took the form of a proposed revocation of existing trusts and the establishment of new trusts, many of which would be similar to the former trusts; and it was proposed that advantage should be taken in the arrangement of the provisions of the Perpetuities and Accumulations Act 1964[19], which, by s 15(5), applied only, so far as material to this case, to instruments taking effect after the commencement of the Act.

The Variation of Trusts Act 1958 allows the variation of beneficial interests under trusts in cases where the beneficiaries are not in the position to do so by exercising their Saunders v Vautier (1841) rights[20]. Essentially the act allows the court to approve a variation on behalf of under-age beneficiaries and potential beneficiaries as yet stated. Lord Megarry stated, the variation is, therefore, effected by the unanimous exercise of the beneficiaries exercising their Saunders v Vautier (1841) rights- those who are sui juris and ascertained consent for themselves, and the court consents on behalf of those who are not; the act does not give the court a general discretionary power to vary trusts at the application of an interested party as in Re Holt's Settlement (1968). For this reason, the Variation of Trusts Act 1958 Act should be made only when the beneficial interests are to be varied. Variations are to be treated as 'new trusts', and the varying parties as settlors of the new trusts, such that the new trusts are subject to whatever statutory provisions apply at the time of variation in Re Holt's Settlement (1968)[21].

Lord Megarry identified, s1 (1) of the act:

The court may only approve an arrangement on behalf of a beneficiary if it would be to his 'benefit', unless s1(1)(d)- the beneficiary is an object of discretionary 'trust over' following the determination of the life interest under a protective trust in which case no 'benefit' need be shown[22]. 'Benefit' has been construed broadly to include not only financial but moral and social benefits as in Re Holt’s Settlement (1968).

The court will not require an absolute certainty of benefit—where subsequent events might make the variation disadvantageous to the beneficiaries on whose behalf the court consents, the scheme will still be approved if the more likely result is an advantage to them; the court should undertake on the beneficiaries' behalf the same sort of risks that an adult would be prepared to take in Re Cohen's Will Trusts (1959)[23] and Re Holt's Settlement (1968).

However, Lord Megarry quoted where the effect of a variation might lead to a possible beneficiary under the old trust, even an as yet unborn individual, being excluded from the new trust entirely, and the variation will not be approved because if such a person is born the variation would be wholly disadvantageous to him (Re Cohen's Settlement Trusts (1965)[24].

Re Kayford Ltd - [1975] 1 All ER 604

The company carried on a mail-order business. Customers either paid the full purchase price or a deposit when ordering goods. By November 1972 the company was in financial difficulties. Being concerned for the customers of the company who had sent and were sending money for goods, the company took advice on how the customers might be protected in the event of the company becoming insolvent. They were advised by accountants to open a separate bank account to be called 'Customers' Trust Deposit Account' into which all further sums of money sent by customers for goods not yet delivered should be paid, so that, should the company be forced into liquidation, those sums could be refunded to the customers who had sent them. The letter to the bank was sent on the following day, and the words 'Customer Trust Deposit account' were then added to the name of the account. In the liquidation proceedings the question arose whether the sums of money paid into the bank account were held on trust for those who had sent them or whether they formed part of the general assets of the company.[25]

Lord Megarry established that in the circumstances a trust had been created, all the requisites of a valid trust of personality were present and the company had manifested a clear intention to create a trust since, from the outset, the whole purpose of what had been done had been to ensure that the moneys sent remained in the beneficial ownership of those who had sent them. Although payment into a separate banking account was a useful indication of an intention to create a trust, there was nothing to prevent the company from binding itself by a trust even if there were no effective solutions, thus, emphasising the rule on the three certainties.

Lord Megarry had a traditional view of the law in equity, and was unwilling to set new legal precedent, yet in the cases mentioned he changed the precedent which indicates how the law of equity was in need of a change and this has had a positive application on the law of equity. Although, prevailing cases have tried to test the rules established, Lord Megarry’s input has proven to be valiant.

Word Count: 2,500

Bibliography

Textbooks

Graham Virgo, The Principles of Equity & Trusts, (OUP, 2012)

Judith Bray, A students guide to Equity & Trusts, (1st Ed, CUP, 2012)

Mohamed Ramjohn, Text, Cases and Materials on Equity and Trusts, (Routledge, 2008) 182

Richard Clements, Ademola Abass , Equity & Trusts, (2nd Ed, OUP, 2011)

Vera Bermingham, Carol Brennan, Tort Law Directions,( 3rd Ed, OUP, 2012)

Websites

LexisNexis, ‘Re Montagu <http://www.lexisnexis.com/uk/legal/results/

enhdocview.do?docLinkInd=true&ersKey=23_T17362966151&format=GNBFULL&startDocNo=0&resultsUrlKey=0_T17362966153&backKey=20_T17362966154&csi=279841&docNo=3&scrollToPosition=25> accessed 10 January 2013

Oxford DNB, ‘Sir Robert Megarry’ <http://www.oxforddnb.com.ezproxy.kingston.ac.uk /view/article/ 97469> accessed 08 January 2013

Telegraph, ‘Sir Robert Megarry’ <http://www.telegraph.co.uk/news/obituaries/1531581/Sir-Robert-Megarry.html> accessed 08 January 2013

Acts

Law of Property Act 1925

Perpetuities and Accumulations Act 1964

Variation of Trusts Act 1958

Cases

Baden Delvaux and Lecuit v Société Générale pour Favoriser le Développement de Commerce et de l'Industrie en France SA [1983] BCLC 325

Bank of Credit and Commerce International (Overseas) Limited (BCCI) v Akindele [2000] 4 All ER 221

Re Cohen's Settlement Trusts (1965) 1 WLR 1229

Re Cohen's Will Trusts (1959) 3 All ER 523

Re Diplock [1951] AC 251

Re Holt's Settlement; Wilson v Holt and Others - [1968] 1 All ER

Re Kayford Ltd - [1975] 1 WLR 527

Re Montagu's Settlement Trusts; Duke of Manchester v National Westminster Bank Ltd and others - [1992] 4 All ER 308

Saunders v Vautier (1841) EWHC Ch J82

Shepherd Homes Ltd v Sandham - [1970] 3 All ER 402

[1] Telegraph, ‘Sir Robert Megarry’ < http://www.telegraph.co.uk/news/obituaries/1531581/Sir-Robert-Megarry.html> accessed 08 January 2013

[2] Re Montagu's Settlement Trusts; Duke of Manchester v National Westminster Bank Ltd and others - [1992] 4 All ER 308

[3] Shepherd Homes Ltd v Sandham - [1970] 3 All ER 402

[4] Re Holt's Settlement; Wilson v Holt and Others - [1968] 1 All ER

[5] Re Kayford Ltd - [1975] 1 WLR 527

[6] Re Montagu's Settlement Trusts; Duke of Manchester v National Westminster Bank Ltd and others - [1992] 4 All ER 308

[7] Mohamed Ramjohn, Text, Cases and Materials on Equity and Trusts, (Routledge 2008) 182

[8] Bank of Credit and Commerce International (Overseas) Limited (BCCI) v Akindele [2000] 4 All ER 221

[9] Baden Delvaux and Lecuit v Société Générale pour Favoriser le Développement de Commerce et de l'Industrie en France SA [1983] BCLC 325

[10] LexisNexis, ‘Re Montagu <http://www.lexisnexis.com/uk/legal/results/

enhdocview.do?docLinkInd=true&ersKey=23_T17362966151&format=GNBFULL&startDocNo=0&resultsUrlKey=0_T17362966153&backKey=20_T17362966154&csi=279841&docNo=3&scrollToPosition=25> accessed 10 January 2013

[11] Re Diplock [1951] AC 251

[12] Shepherd Homes Ltd v Sandham - [1970] 3 All ER 402

[13] Law of Property Act 1925

[14] Richard Clements, Ademola Abass , Equity & Trusts, (2nd Ed, OUP, 2011)

[15] Shepherd Homes Ltd v Sandham - [1970] 3 All ER 402

[16] Graham Virgo, The Principles of Equity & Trusts, (OUP, 2012)

[17] Vera Bermingham, Carol Brennan, Tort Law Directions,( 3rd Ed, OUP, 2012)

[18] Variation of Trusts Act 1958

[19] Perpetuities and Accumulations Act 1964

[20] Saunders v Vautier (1841) EWHC Ch J82

[21] Vera Bermingham, Carol Brennan, Tort Law Directions,( 3rd Ed, OUP, 2012)

[22] Judith Bray, A students guide to Equity & Trusts, (1st Ed, CUP, 2012)

[23] Re Cohen's Will Trusts (1959) 3 All ER 523

[24] Re Cohen's Settlement Trusts (1965) 1 WLR 1229

[25] Re Kayford Ltd - [1975] 1 WLR 527

Robert Megarry and Equity - Four Cases considered.

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