ASSESSED QUESTION: Trusts and Equities

Introduction

The situation with the Brighton Orchid Growing Society is a unique case in law because it involves a number of key considerations, such as the formation of a trust, the nature of a charitable trust and the procedure upon termination of that trust. The scenario with regards to Annabelle and the ball attendees will be considered herein to the extent that it shall be shown that there was the creation of a trust with the intention of disposing property for the beneficial interest of someone else and that this trust was charitable in nature under the relevant legislation. Upon termination of this trust, certain measures of public interest are applicable so that the spirit of the gift is not lost.

Equity and Trusts

It is evident that the situation between the Society, Annabelle and the ball attendees is a situation that indicates the presence of a trust. The situation described will be dealt with in terms of the applicable situation for Beatrice and separately, the issue of the ball attendees.

Thomas and Hudson describe a trust as:

‘[T]he imposition of an equitable obligation on a person who is the legal owner of property (a trustee) which requires that person to act in good conscience when dealing with that property in favour of any person (the beneficiary) who has a beneficial interest recognised by equity in the property. The trustee is said to “hold the property on trust” for the beneficiary. There are four significant elements to the trust: that it is equitable, that it provides the beneficiary with rights in property, that it also imposes obligations on the trustee, and that those obligations are fiduciary in nature.’[1]

There are three parties to a trust, namely the settler (or founder), the trustee and the beneficiary. A trust is created by a settlor, who transfers some or all of his property to a trustee, who holds that trust property for the benefit of the beneficiaries. In this instance, Annabelle is the settlor and whether or not the Society functioned as a trust prior to her death will determine whether her death created a testamentary trust, in other words the trust was formed upon her death by way of will or testament. There is however no indication on the facts that this is the case and this is increasingly unlikely if one considers that prior to her death, the fundraiser was collecting funds on behalf of the Society, which arguably places it as a trust prior to the death of Annabelle and the subsequent donation of funds. It can be assumed on the basis of the facts that the trust created was an express trust, as the settlors were the absolute owner of the subject matter of the trust. Although this is an unclear assumption based on the facts given for the ball attendees, this much is certain for Annabelle who served as the President of the Society prior to her death and therefore it stands to reason that she understood the function and purpose of the money left to the trust.

In order to establish a trust, there is the need for three certainties: Certainty of Intention, certainty of subject matter and certainty of object.[2] According to Paul v Constance[3] certainty of intention does not require the express intention to create a trust in those exact words, rather that there be the expressed intention to dispose of property so that someone else acquires a beneficial interest. According to the given facts, it is clear that the intention of Annabelle was to dispose of property in the form of money for the benefit of another party. Against the same frame of analysis used for Annabelle, a similar analysis can be carried out for the funds raised at the fancy dress ball. To the inquiry as to certainty of intention, it is debatable on the facts given whether the donations received at the fancy dress ball intended in any way for a trust situation to arise. If one applies the criteria of Paul v Constance that there be the expressed intention to dispose of property so that someone else acquires a beneficial interest, one can argue that there is little doubt that the donations made by Charlotte and Elizabeth were accepted with this intention in mind. It is arguable on the facts whether the proceeds from the ticket and raffle sales can be said to fall within the parameters of the same intention, as to a certain extent there is an element of quid pro quo here which denotes that this intention was one of personal motivation rather than a charitable donation for the benefit of another, as well. However, based on the facts that are available, it seems clear that these funds were collected for the purposes of disposing of this property for the beneficial interest of another.

Palmer v Simmonds[4] is authority within the law for certainty of subject matter, which is to say that the exact subject matter of the trust must be determined. In the case of Annabelle, as well as the funds raised by the ball attendees, this is clear given that the money specified for the trust is exact and determined.

Certainty of object is somewhat more problematic in this instance as the beneficiary is not a person. In Morice v the Bishop of Durham, Sir Grant stated that “there must be somebody, in whose favour the court can decree performance”.[5] According to this principle, unless the purpose is charitable, unless a trust is for a human beneficiary it will be void, this beneficiary principle is regarded as a cardinal one of the law relating to private trusts. There are exceptions to this principle, on account of the apparently definite pronouncement of the principle in Re Astor[6] which also allowed for some “anomalous exceptions” to it to be valid. This is known as the beneficiary principle. It is clear that the donation to the Society by Annabelle is not for the benefit of any person. Therefore in order for the donation to have constituted a trust over which the members of the Society were trustees, the Society must either be charitable in purpose or the donation must fall within one of the scenarios identified as the exception to this rule. The Charities Act 2006 provides an equitable solution to this problem by extending the scope of what may be classified as a charitable trust, identifying in s2(2)(i) the advancement of environmental protection or improvement. According to Hudson,[7] the environment can be taken to refer to particular items of flora and fauna at a narrow end of the spectrum, to combating climate change or global warming as a broader purpose. There in terms of the Charities Act,[8] the certainty of object that is required for the validity of the trust is given as having a charitable purpose for the advancement of environmental protection.

There is an extra requirement on a charitable trust that it be for public benefit. This is a statutory requirement which states that there must be an identifiable benefit to the public or a section of the public, although it has roots in the common law. According to operational guidelines set forth by the Charities Commission, the conservation of an environment constitutes public benefit. A sub-requirement of this is that the benefit be related to the aims of the charitable purpose. It is clear on the facts that the conservation of this species of orchid is closely related to the conservation of the environment which focuses on this particular species of flower. The aims of the charity therefore and the benefit are closely related. The benefit must also be balanced against any detrimental harm and therefore be for the overall benefit, rather than some benefit. It is clear that there is no detrimental harm in this case that is foreseeable for the trust and therefore it can be argued that the trust is beneficial.

In terms of being a benefit to the public or a section of the public, the Charities Commission outlines that the class of people who can benefit must be a public class. In general, the public class must be sufficiently large or open in nature given the charitable aim that is to be carried out and that the benefits are widely available. Alternatively, where the benefit is to a section of the public, that this section not be unreasonably restricted.[9] It is clear that there are no restrictions on the benefit accruing in this case to the general public. The only restriction arguably is on geographical location in terms of who can physically benefit from the Society’s conservation efforts.

Accordingly therefore on the basis of the above certainties as well as the fact that the trust creates a public benefit that there was the creation of a trust in favour of the charitable purpose of environmental protection.

Termination or Winding Up of the Trust

In the case of the termination of a non-charitable trust the consent of all beneficiaries is required and the remainder of the trust assets are divided equitably amongst the beneficiaries. The situation however is different for charitable trusts as there are no beneficiaries per se. Under the Charities Act, the cy-pres doctrine is application. The doctrine provides that when such a trust has failed because its purposes are either impossible or cannot be fulfilled, the High Court of Justice or Charity Commission can make an order redirecting the trust’s funds to the nearest possible purpose. For charities with a net worth of below ?5000 and with no land, the trustees may make a decision regarding the distribution of the trust’s assets.

This order will be made with appropriate consideration which is defined as “the spirit of the gift concerned, and (on the other) the social and economic circumstances prevailing at the time of the proposed alteration of the original purposes”.[10] The funds therefore will not be distributed among the members of the Society and therefore the direction by the president to the treasurer to distribute these assets is accordingly invalid. The court may make an order therefore directing that the surplus funds of the Society be redirected towards a similar cause. Although it was stated that the growing of Orchids was ecologically unsound, the spirit in which the gift was made, or the intention of Annabelle was to erect a bronze statue of a rare orchid. Despite the failed purpose of the society, there are no prevailing reasons why this statue cannot still be erected and therefore it stands to reason that a portion of the funds may be redirected towards this cause.

The Charities Act also allows the commission to take into consideration factors of social utility, or as it is specifically referred to in the act, to conditions of social and economic circumstances. According to the Charities Commission, there is little point in preserving trusts that will not allow the property of the terminated charity to be appropriate and effectively applied in the light of these current social and economic circumstances.[11] Considering therefore that the purpose of the society has been found to be ecologically unsound, the surplus funds may be directed elsewhere by the charities commission, although there is little evidence based on the given facts to entertain speculation as to this distribution.

Conclusion

Although it is regrettable that the Society be wound up, the intentions and spirit with which the funds were bequeathed to the Society still have the opportunity to fulfil the functions for which they were intended at least in part. There is the possibility that the bronze statue envisioned by Annabelle may still be built and that the surplus funds be used for a similar purpose as that for which they were intended. A combination of common law and new statutory provisions has ensured a maximum consideration for public benefit in these types of organisations ensuring that the charitable wishes of the benefactors are respected in as greater way possible.

Bibliography

Primary Source

Charities Act 1992 as amended

Charities Act 2006

Charities Act 2011

In Re Astor’s Settlement Trusts, [1952] 1 All E. R. 1067

Morice v. Bishop of Durham (1804) 9 Ves. Jr. 399 (affd. (1805) 10 Ves. Jr. 522)

Palmer v Simmonds (1854) 2 Drew. 221

Paul v Constance [1977] 1 W.L.R. 527

Wright v. Atkyns (1823) Turn. & R. 143,

Secondary Sources

Charities Commission (2012) Charities and Public Benefit [online] Available on: http://www.charity-commission.gov.uk/Charity_requirements_guidance/Charity_essentials/Public_benefit/public_benefit.aspx#e [Accessed 9 December 2012]

Charities Commission (2012) Operational Guidance: Application of the Property Cy-pres OG2 B2 – 14 March 2012. [online] Available on: http://www.charitycommission.gov.uk/about_us/ogs/g002b002.aspx [Accessed 13 December 2012]

Hudson, A. (2004) Understanding Equity and Trusts (2nd ed) Cavendish: London

Hudson, A. (2007) Equity and Trusts (5th ed) Routledge-Cavendish: London

Hudson, Alastair (2009). Equity and Trusts (6th ed.). Routledge-Cavendish

Thomas, G. & Hudson, A. (2004) The Law of Trusts (1st ed.) Oxford University Press