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Equity and Trust


Law of trusts was developed by part of equity. It is a body of principles created by the Courts of Chancery. Objectives of these principles were to rectify the strictness imposed by the provisions of common law. Further trust was an additional term to the law of property. This term is a situation in which legal title of property is held by one person but he or she is eligible to use this right for the benefit of another person. It is recognized a split between the beneficial and legal ownership. In general terms equity can be defined as collection of principles which are intended to complement principles of common law. Functions of equity is to mitigate the unfair or unjust impact due to rigid principles of common law. Main objective of equity is provide assurance of fairness. It is often at the expense of certainty in the law. Present report will include description of various aspects of law of trusts and equity. Discussion of the provisions will be linked to the case scenario of Hunter v Moss [1994] 1 WLR 452. It is a English trusts law case from the Court of Appeal. This case study was focused on the certainty of subject matter which is mandatory for the formation of trust.

English trust law

English trust law is focused on the formation and protection of funds of assets. These asset funds are usually held by one person for the benefit of another person. Trusts are formed on the basis of English law of property and obligations. It is developed by the parties because claimants were dissatisfied from the court proceeding with the common law courts in the case of property disputes. In general context trusts are created by settlor for beneficiaries. Settlor is a person who provides property to one or more trustees who use the assets on behalf of beneficiaries. Similar to the provisions of contract law there is no requirement of formality of formation of trust until and unless it is required by law [Convention on the Law Applicable to Trusts and on their Recognition 1985, Art 22.]. For the protection of Settlor, reasonable degree of certainties is demanded by the English trust law that trust was intended to be formed. Such requirement is imposed for the enforceability of terms of trusts [Gordon, K. ‘The Certainties of Trust Vol. 158 (2006) Taxation Magazine]. Further it is also required by the court of law that for which assets trust was formed and which people will be beneficiaries of the trust. Formation of trust can be expressed or it can also be resulting and constructive. These trusts are formed through the automated operations of law for the prevention of unjust enrichment and for rectification of wrongdoings. Although resulting and constructive are not identical to expressed trust because it is merely formed to protect the rights of individual.

Trustees owe range of duties and obligations to the beneficiary. If duties and obligations are not described in the trust deed than trustee is required to avoid such actions which can lead to conflicts in interests of parties. Affairs of trusts is required to be managed with reasonable skills and care and all the act of parties should be consistent with terms of trusts.

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Principles of the equity and trust law is as follow

Trust fund must be separately identifiable

As per the traditional principle of law property of trust should be separately identifiable from the other properties. For this case of Re London Wine Co. (Shippers) Ltd. (1986) Palmer's Co. Cas. 121 can be referenced. In this case court said that bottles of wine is not separately identifiable as a property of trust thus formation of trust was not valid. Decision held in this case is not consistent with the general policy of insolvency law[ Gordon, K. ‘The Certainties of Trust’Vol. 158 (2006) Taxation Magazine.]. Similar case is cited in situation of *Re Goldcorp[ [1995] 1 A.C. 74]. In this case likely decision for segregation of property was provided. Westdeutsche Landesbank Girozentrale v Islington [ LBC[1996] UKHL 12]is leading case precedent of the resulting trust. In this case decision was made by court of law that no proprietary equitable claim will be accepted without specification of the trust property.

Principle for intangible or exchangeable property

In exception to the general rule that “property of trust should be separately identifiable in the discussed subject matter of trust” further consideration is provided is subject matter is comprises of intangible or fungible assets. Identification of declared assets will be comparatively complex if it is not clarified that which part of the entire assets is affected by the trust. If assets is part of heterogeneous property than segregation is mandatory[ Pettit, P. H. (2012). Equity and the Law of Trusts. Oxford University Press.]. However if assets is homogeneous than validity of trust will not solely determined on the basis of certainties in subject matter[ Langbein, J. H. (2005). Questioning the Trust Law Duty of Loyalty: Sole Interest or Best Interest?. Yale Law Journal, 929-990.]. Stiff exception will be applicable in case scenario only if assets are homogeneous and intangible in nature for examples shares or money or bank balance. In the case of Hunter v Moss[ [1994] 1 WLR], court of appeal held that a trust for 5% of the share capital of the private company was defined in specified clarity. Although particular shares were not ear-marked by Mr Moss in any manner due to this it was not clarified that Hunter is entitled for which fifty shares. By applicability of the exception to the general rule court held that share will be transferred on the basis of pro rata. Outcome of the cited case was typical to reconcile with decisions of other cases where trusts were declared invalid. Thus interpretation was made by the common law that requirement of specification of trust property will only be applied in situation of common stock.

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Nature of property for the formation of trust fund

Property for which trust is formed should be in accordance with the statutory provisions. Property for trust can be tangible or intangible in nature but should not prejudice to the interest of beneficiaries. Case of Don King Productions v. Warren[ [1998] 2 All E.R. 608 ] can be referenced for the nature of property for the formation of trust fund. This case was based on the partnership trust in which it was said that property considered should be appropriate else it will invalidate the objectivity

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