ADVANCED EQUITY AND TRUSTS

Alastair is a legal academic, barrister, and the author of more than 20 books. (To be entirely honest, he has lost count. There are 38 volumes on the shelf - if you include successive editions and jointly-authored books as different books.)

He is a UK National Teaching Fellow, and was voted UK Law Teacher of the Year in 2008. He is a Fellow of the Royal Society of Arts and a Fellow of the Higher Education Academy. He was Professor of Equity & Law at Queen Mary University of London for fourteen years and Professor of Equity & Finance Law at the University of Southampton, having also taught at his alma mater King's College London before that. He worked in investment banking, was a policy advisor to various members of the Labour Party front bench (and to Labour commissioners on the Parliamentary Commission on Banking Standards), and was a member of a Law Commission advisory committee in its work on investment intermediaries.

During 2015 and 2016 he is writing a number of new books and articles, rebuilding this website, recording new podcasts and vidcasts, and breathing. He has also been judging the Law Teacher of the Year competition, and has had the opportunity to spend a few very enjoyable days teaching at the University of Exeter. He continues to teach on the University of London External Programmes LLM programme: providing materials for those students is his current priority.

ADVANCED EQUITY AND TRUSTS

University of London LLM

The course is led by:

Professor Alastair Hudson

Professor of Equity & Law

Department of Law, Queen Mary, University of London

2006/2007

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Introduction

This course intends to focus on aspects of equity and trusts in two specific contexts: commerce and the
home.  It  will  advance  novel  conceptual  approaches  to  two  significant  arenas  in  which  equitable
doctrines like the trust are deployed. In the context of commercial activity the course will consider the
manner in which discretionary equitable doctrines are avoided  but also the significant role which the
law  of  trusts  plays  nevertheless  in  commercial  and  financial  activity.  In the context of the  home  to
consider  the  various  legal  norms  which  coalesce  in  the  treatment  of  the  home:  whether in  equitable
estoppel, trusts implied by law, family law, human rights law and housing law.

Teaching

Organised  over  three  terms,  2  hours  per  week,  comprising  a  lecture  in  the  first  week  followed, generally, by a seminar in the following week as a cycle. See, however, the three introductory topics which are dealt with differently.

Examination / assessment

Examination will be by one open -book examination which will ask students to attempt three questions in three hours.

Textbooks

It is suggested that you acquire a textbook and you may find it useful to acquire a cases and materials book, particularly if you have not studied English law before.

Recommended general text:-

*Alastair Hudson: Equity and Trusts (4th ed.: Cavendish Publishing 2005).

Other textbooks:-

Hanbury and Martin: Modern Equity (17th ed., by Dr J. Martin: Sweet & Maxwell 2005).
Parker and Mellows: The Modern Law of Trusts (8thed., by A.J.Oakley: Sweet & Maxwell 2003).
Pettit: Equity and the Law of Trusts (10th ed.: OUP 2005).

Introductory reading

* Hudson, Understanding Equity and Trusts ((2nded,  Cavendish, 2004)  this book will be particularly useful for students who have not studied trusts law before.

Cases and materials books which may be of use or save time in the library:-

Maudsley and Burn: Trusts and Trustees: Cases and Materials (6th ed.: Butterworths 2002).
Hayton  and  Marshall: Cases  and  Commentary  on  the  Law  of  Trusts (12th ed., by D.  Hayton and  C. Mitchell: Sweet & Maxwell 2005).
Moffat: Trusts Law: Text and Materials (4th ed.: reprintedCUP 2005).

Practitioners' texts

*Thomas and Hudson, The Law of Trusts (1st ed., Oxford University Press, 2004, 1,907pp): the newest practitioner text in England which not only considers  the  basic  principles  of trusts law but also puts them in the context of particular uses of trusts in practice.
Underhill and Hayton, Law  Relating to Trusts and Trustees (16th ed., by D. Hayton: Butterworths 2002).
Lewin on Trusts (17th ed., by Mowbray, et al: Sweet & Maxwell, 2000).

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Syllabus

Aims and objectives

This course considers the topic of Equity & Trusts in two ways: first, it considers the practical application of trusts law principles to commercial and non-commercial contexts; second, it considers the intellectual issues which are bound up with equity and with trusts law. This course considers issues such as the place of equity within legal theory, the nature of property in law, the inter-action of commercial law and trusts law, the stuttering development of unjust enrichment, and the particular context of the home as considered by equity, trusts law, family law and legal theory.

Course outline

Topic 1*. Core principles of equity and the law of trusts
Topic 2*. Foundational techniques of express trusts (1 & 2)
Topic 3*. Themes in equity & trusts topic 4. Obligations of trustees (i): control of trustees & breach of trust
Topic 5.  Obligations of trustees (ii): investment of trusts Topic 6. Equity and commerce (1): suspicion of equity, taking security & contract
Topic 7.  Equity and commerce (2): finance, trusts and the local authority swaps cases
Topic 8.  Constructive trusts (i): secret profits and bribes
Topic 9.  Constructive trusts (ii): fraud, contract and confidentiality
Topic 10. Breach of trust (i): dishonest assistance and knowing receipt
Topic 11. Breach of trust (ii): tracing
Topic 12. Trusts of homes (i): English trusts law approaches
Topic 13. Trusts of homes (ii): Commonwealth and remedial approaches
Topic 14. Trusts of homes (iii): Other perspectives on rights in the home
{Topic 15. Equitable remedies and the nature for equity}

*Due to the nature of the LLM – and the movement of people through various courses until the group eventually settles down – these initial topics will be covered for one week  only  principally  in  the  form  of  lectures. These  topics  are  intended (a) to introduce people who have not studied trusts before to the core principles, as well as refreshing the memories of those who have studied trusts before, and (b) to introduce students to some of the key intellectual debates which will form the subject matter of the course. Each of these sessions will have space for discussion.

Thereafter, each topic will be covered by a lecture in the first week followed by a seminar on the same topic in the second week.

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Timetable for the course

This course outline sets out the sequence of lectures in this topic. Students should be warned, however, that it is susceptible to minor change as the year progresses. It also contains lecture notes and the outline questions for seminars.

Week: w/c - Topic lecture/seminar

2 / 10 - Core principles of equity and the law of trusts
9 / 10 - Foundational techniques of express trusts (1)
16 / 10 - Foundational techniques of express trusts (2)
23 / 10 - Themes in equity and trusts
30 / 10 - Obligations of trustees (i): control of trustees & breach of trust
6 / 11 - No class this week
13 / 11 - Obligations of trustees (i): control of trustees & breach of trust
20 / 11 - Obligations of trustees (ii): investment of trusts
27 / 11 - Obligations of trustees (ii): investment of trusts
4 / 12 - Equity and commerce (1): suspicion of equity, taking security &
contract
11 / 12 - Term End Equity and commerce (1): suspicion of equity, taking security &
contract
8 / 1 - Equity and commerce (2): finance, trusts and the local authority
swaps cases
15 / 1 - Equity and commerce (2): finance, trusts and the local authority
swaps cases
22 / 1 - Constructive trusts (i): secret profits and bribes
29 / 1 - No class this week
5 / 2 - Constructive trusts (i): secret profits and bribes
12 / 2 - Constructive trusts (ii): fraud, contract and confidentiality
19 / 2 - Constructive trusts (ii): fraud, contract and confidentiality
26 / 2 - Breach of trust (i): dishonest assistance and knowing receipt
5 / 3 - Breach of trust (i): dishonest assistance and knowing receipt
12 / 3 - Breach of trust (ii): tracing
19 / 3 - Breach of trust (ii): tracing
26 / 3 - Term End Trusts of homes (i): English trusts law approaches
30 / 4 - Trusts of homes (i): English trusts law approaches
7 / 5 - Trusts of homes (ii): Other perspectives on rights in the home
14 / 5 - Trusts of homes (ii): Other perspectives on rights in the home
21 / 5

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TOPIC 1. THE FOUNDATIONS OF EQUITY AND THE LAW OF TRUSTS

Aim: This topic is concerned to introduce students to the core principles which underpin equity in general
terms and the law of trusts in particular. The difficulty with beginning this LLM course is that there are
usually two types of student: those who studied trusts law at undergraduate level and those who never
studied trusts law at all before. Therefore, the first three topics of this course aim to teach the basics to
novices and to serve as a refresher course for the initiated.


LECTURE MATERIALS

(A) The nature of equity

Reading: Hudson, section 1.1

1) Philosophical ideas of equity

The following ideas come from Aristotle's Ethics, and should be understood as considering the
difference between common law and equity:

"For equity, though superior to justice, is still just... justice and equity coincide, and although both are good, equity
is superior. What causes the difficulty is the fact that equity is just, but not what is legally just: it is a rectification of
legal justice."

So it is that equity provides for a better form of justice than the common law because it provides for a
more specific judgement as to right and wrong in individual cases which rectifies any errors of fairness
which the common law would otherwise have made:

"The explanation of this is that all law is universal, and there are some things about which it is not possible to
pronounce rightly in general terms; therefore in cases where it is necessary to make a general pronouncement, but
impossible to do so rightly, the law takes account of the majority of cases, though not unaware that in this way errors
are made. ... So when the law states a general rule, and a case arises under this that is exceptional, then it is right,
where the legislator owing to the generality of his language has erred in not covering that case, to correct the omission
by a ruling such as the legislator himself would have given if he had been present there, and as he would have enacted
if he had been aware of the circumstances."

Thus, equity exists to rectify what would otherwise be errors in the application of the common law to
factual situations in which the judges who developed common law principles or the legislators who
passed statutes could not have intended.


2) Early case law on the role of equity

Earl of Oxford's Case (1615) 1 Ch Rep 1, per Lord Ellesmere:

       "the office of the Chancellor is to correct men's consciences for frauds, breach of trusts, wrongs and oppressions ...
and to soften and mollify the extremity of the law"
Lord Dudley v Lady Dudley (1705) Prec Ch 241, 244, per Lord Cowper:

"Now equity is no part of the law, but a moral virtue, which qualifies, moderates, and reforms the rigour, hardness,
and edge of the law, and is an universal truth; it does also assist the law where it is defective and weak in the
constitution (which is the life of the law) and defends the law from crafty evasions, delusions, and new subtleties,
invested and contrived to evade and delude the common law, whereby such as have undoubted right are made
remediless: and this is the office of equity, to support and protect the common law from shifts and crafty contrivances
against the justice of the law. Equity therefore does not destroy the law, nor create it, but assist it."

3) The fusion of common law and equity

Judicature Act 1873

4) The structure of English private law

Reading: Hudson, section 1.2

- Common law and equity were always distinct: the courts of common law were in Westminster
Hall at one time, the courts of equity were in Lincoln's Inn Hall.

- For a good illustration of the difficulties caused by this distinction see Charles Dickens's Bleak
House.

- Judicature Act 1873 merged the two streams of courts, however the intellectual distinction
between common law and equity remains very important.

Common law -- Equity

Examples of claims:

Breach of contract -- Breach of trust
Negligence -- Tracing property
Fraud -- Claiming property on insolvency

Examples of remedies available:

Damages -- Compensation
Common law tracing -- Equitable tracing
Money had and received -- Specific performance
      -- Injunction
      -- Rescission
      -- Rectification
      -- Imposition of constructive trust
      -- Imposition of resulting trust
      -- Subrogation
      -- Account

(B) The structure of the trust relationship.

Reading: Hudson, sections 2.1 and 2.2

"The essence of a trust is the 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."

- Thomas and Hudson, The Law of Trusts

"A trust is an equitable obligation, binding a person (called a trustee) to deal with property owned by him (called
trust property, being distinguished from his private property) for the benefit of persons (called beneficiaries or, in old
cases, cestuis que trust), of whom he may himself be one, and any one of whom may enforce the obligation [or for a
charitable purpose, which may be enforced at the instance of the Attorney-General, or for some other purpose
permitted by law though unenforceable]."

- Underhill and Hayton, The Law of Trusts and Trustees, as amended by Pettit

(C) Classification of trusts.

Reading: Hudson, section 2.2

The four types of trust
1. Express trusts
2. Resulting trusts
3. Constructive trusts
4. (Implied trusts)

Section 53(2) Law of Property Act 1925 refers to "implied, resulting and constructive trusts".
Westdeutsche Landesbank v. Islington [1996] 1 AC 669, per Lord Browne-Wilkinson:-

       "(i) Equity operates on the conscience of the owner of the legal interest. In the case of a trust, the conscience of the
legal owner requires him to carry out the purposes for which the property was vested in him (express or implied trust)
or which the law imposes on him by reason of his unconscionable conduct (constructive trust)."

(D) The means by which the different forms of trusts come into existence.

Reading: Hudson, section 2.2

The three forms of trust come into existence in the following ways:

       "A trust comes into existence either by virtue of having been established expressly by a person (the settlor) who was
the absolute owner of property before the creation of the trust (an express trust); or by virtue of some action of the
settlor which the court interprets to have been sufficient to create a trust but which the settlor himself did not know
was a trust (an implied trust); or by operation of law either to resolve some dispute as to ownership of property where
the creation of an express trust has failed (an automatic resulting trust) or to recognise the proprietary rights of one
who has contributed to the purchase price of property (a purchase price resulting trust); or by operation of law to
prevent the legal owner of property from seeking unconscionably to deny the rights of those who have equitable
interests in that property (a constructive trust)."
- Thomas and Hudson, The Law of Trusts

(E) The rudiments of express trusts.

Reading: Hudson, section 2.3

An express trust can be understood as follows, comprising the "magic triangle" of settlor, trustee and
beneficiary. The core of the "trust" is the inter-action of personal rights and claims between these
persons in relation to the trust property. It is therefore vital to distinguish between "in personam" and
"in rem" rights.



(F) The concept of fiduciary responsibility.

Reading: Hudson, section 2.3.3; and the essay comprising
chapter 14.

A trustee is an example of a fiduciary, so it is important to understand what the concept of fiduciary
responsibility entails.

"A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in
circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is
the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. The core liability has
several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place
himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of
a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is
sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary."
       - Bristol and West Building Society v Mothew [1998] Ch 1 at 18, per Millett LJ

       "A person will be a fiduciary in his relationship with another when and in so far as that other is entitled to expect
that he will act in that other's interests or (as in a partnership) in their joint interests, to the exclusion of his own
several interest."
       Paul Finn, "Fiduciary Law and the Modern Commercial World", in Commercial Aspects of Trusts and Fiduciary Relationships (ed. McKendrick,                   1992), p. 9.

See also: Finn, Fiduciary Obligations (1977);
Finn, "The Fiduciary Principle", in Equity, Fiduciaries and Trusts (ed. T.G. Youdan, 1989);
A.J. Oakley, Constructive Trusts (1997), Ch. 3; and
A.J. Oakley (ed.), Trends in Contemporary Trust Law (1996).

(G) The benefits of trusts

Reading: Hudson, section 2.5

A framework for understanding change in the law of trusts: three conceptions of the trust -
moralistic, individual property, capital management: see Cotterrell, "Trusting in Law" (1993)
46 CLP 75, 86-90.

(H) The core principles of equity

Reading: Hudson, section 1.4

The thirteen propositions set out below are culled, as a list, primarily from Snell's Equity, (31st ed.,
2004) by McGhee, 27.
- Equity will not suffer a wrong to be without a remedy
- Equity follows the law
- Where there is equal equity, the law shall prevail
- Where the equities are equal, the first in time shall prevail
- He who seeks equity must do equity
- He who comes to equity must come with clean hands
- Delay defeats equities
- Equality is equity
- Equity looks to the intent rather than to the form
- Equity looks on that as done that which ought to have been done
- Equity imputes an intention to fulfil an obligation
- Equity acts in personam

Hudson adds to that list three further principles:-

- Equity will not permit statute or common law to be used as an engine of fraud (e.g.: Rochefoucauld
v. Boustead);
- Equity will not permit a person who is trustee of property to take benefit from that property qua
trustee (e.g.: Westdeutsche Landesbank);
- Equity abhors a vacuum (e.g.: Vandervell v. IRC).

(I) Fundamental principles of trusts: the obligations of trustees and the rights of beneficiaries

Reading: Hudson, section 2.4

**Westdeutsche Landesbank v. Islington [1996] 2 All E.R. 961, 988. [1996] AC 669
*Saunders v Vautier (1841) - the rights of the beneficiary

Lord Browne-Wilkinson in Westdeutsche Landesbank v. Islington [1996] 2 All E.R. 961, 988 sought to
set out the framework upon which the trust operates:-

"THE RELEVANT PRINCIPLES OF TRUST LAW:

(i) Equity operates on the conscience of the owner of the legal interest. In the case of
a trust, the conscience of the legal owner requires him to carry out the purposes for which the
property was vested in him (express or implied trust) or which the law imposes on him by
reason of his unconscionable conduct (constructive trust).

'(ii) Since the equitable jurisdiction to enforce trusts depends upon the conscience of
the holder of the legal interest being affected, he cannot be a trustee of the property if and so
long as he is ignorant of the facts alleged to affect his conscience ...

'(iii) In order to establish a trust there must be identifiable trust property ...

'(iv) Once a trust is established, as from the date of its establishment the beneficiary
has, in equity, a proprietary interest in the trust property, which proprietary interest will be
enforceable in equity against any subsequent holder of the property (whether the original
property or substituted property into which it can be traced) other than a purchaser for value of
the legal interest without notice."

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TOPIC 2. FOUNDATIONAL TECHNIQUES OF EXPRESS TRUSTS (1)

Aim: The purpose of this topic is to consider some of the core principles underpinning express trusts law
- the area which is most commonly met in practice (before litigation to recover property begins ...) - and
to introduce novice students to these core ideas. However, this is not simply an undergraduate lecture.
Rather, the intellectual goal here is to present some of these well-known cases on the constitution of
express trusts as being a set of techniques which are used by practitioners to develop the forms of trust
and "property management vehicles" which their clients need. The textbook considers this set of techniques
in Hudson, Equity & Trusts, Chapter 7. It is not expected that we will cover all of this material in
detail.

LECTURE MATERIALS

Lecture plan

A set of techniques
- Avoiding mandatory rules
- Controlling who has rights and who does not
- Retaining flexibility
- The line between trust and contract, proprietary and personal rights
- Regulatory avoidance

Areas covered
- Certainty of intention
- Certainty of subject matter
- Certainty of objects
- The beneficiary principle
- Dispositions of equitable interests
- Covenants to settle property

The need for the three certainties

Reading: Hudson, sections 3.1 and 3.2

"...first...the words must be imperative...; secondly...the subject must be certain...; and
thirdly...the object must be as certain as the subject"
(per Lord Eldon in Wright v. Atkyns (1823) Turn. & R. 143, 157).

(A) Certainty of Intention.

Reading: Hudson, section 2.6, and especially 3.3

(1) Intention to create a trust inferred from the circumstances

Paul v Constance [1977] 1 W.L.R. 527
Re Kayford [1975] 1 WLR 279

(2) Sham trusts and trusts intended to defraud creditors
Midland Bank plc v. Wyatt [1995] 1 F.L.R. 696 (sham trusts).


Unfinished transcript TBC

Overview

A trust is a way of managing assets (money, investments, land or buildings) for people. There are different types of trusts and they are taxed differently.

Trusts involve:

 -  the ‘settlor’ - the person who puts assets into a trust
 -  the ‘trustee’ - the person who manages the trust
 -  the ‘beneficiary’ - the person who benefits from the trust