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    Research Methods Questions

    This assignment is to answer coursework questions that follow each weekly reading.  I have broken down each week for you to know what chapters the answers should be from.  Also, I’ve included scholarly readings that the instructor has provided for us to also use as additional support.  Please see the attachment on the requirements to cite.  While there is no minimum number of sources to cite, each question should cite the required textbooks and attachments provided along with whatever else can support the argument.  Please label each question with the week and letter it is associated with, for example, week 5 question C should be labeled “5C”.  There are 18 total questions, all are highlighted in this document.  Each question should be at least a half a page single spaced in 12 font utilizing the APA style.

    Notes from the instructor:

    Postings should be substantive in nature:

    • Providing a new thought, idea or perspective
    • Citing an experience or example of what we are learning
    • Critically thinking about an idea/concept
    • Questioning or challenging a principle or perspective

     

    Required Texts for this assignment:

    1. Kuhn, Thomas S., The Structure of Scientific      Revolutions, University of Chicago Press, Chicago, IL (Any unabridged      edition is acceptable).
    2. Corbett, Michael and Le Roy, Michael K., Research      Methods in Political Science, Thomson/Wadsworth Publishers (Latest      Edition).

    Scholarly Readings to Cite:

    1. Lakatos, Imre, Falsification and Methodology of      Scientific Research Programs, Cambridge University Press      Publishers (November 28, 1980) ISBN-10: 0521280311 ISBN-13:      978-0521280310
    2. Hernstein, Richard and Murray, Charles, The Bell      Curve: Intelligence and Class Structure in American Life, Free      Press, Publisher. 1st Free Press Pbk. Ed edition (January 10, 1994)      ISBN-10: 0684824299 ISBN-13: 978-0684824291
    3. Beer, Francis, Peace against War: The Ecology of      International Violence, San Francisco: W. H. Freeman, (1981)      ISBN-10: 0716712512 ISBN-13: 978-0716712510
    4. Smith, Steven, The United States and the      Discipline of International Relations: “Hegemonic Country Hegemonic      Discipline “, International Studies Review, Vol. 4,      No. 2, International Relations and the New Inequality. (Summer, 2002), pp.      67-85.
    5. Morganthau, Hans, Politics Among Nations: The      Struggle for Power and Peace, McGraw-Hill Publisher. 7th edition      (April 19, 2005) ISBN-10: 007289539X ISBN-13: 978-0072895391
    6. Cloward, Richard and Piven, Francis Fox, Regulating      the Poor: The Functions of the American Public Welfare System,      Vintage Press Publisher (September 28, 1993) ISBN-10: 0679745165 ISBN-13:      978-0679745167
    7. Rakove, Milton, Don’t Make No Waves, Don’t      Back No Losers: An Insiders Guide to the Daley Machine, Indiana      Press Publisher (1975) ISBN-10: 0253117259 ISBN-13: 978-0253117250
    8. Bloom, Allen, The Closing of the American Mind:
      How Higher Education Has Failed Democracy and Impoverished the Souls of      Today’s Students
      , Publisher: Simon & Schuster; 1st      Touchstone Ed edition (May 15, 1988) ISBN-10: 0671657151 ISBN-13:      978-0671657154
    9. Clifford, Clark M., Counsel to the President,      A Memoir, Publisher: Random House, 1st Edition (May 21,      1990) ISBN-10: 0394569954 ISBN-13: 978-0394569956

     

     

     

    Week 2:

    Readings:

    Kuhn, Thomas S., The Structure of Scientific Revolutions,

    • Ch. 6, Anomaly and the Emergence of Scientific      Discoveries
    • Ch. 7, Crises and the Emergence of Scientific Theories
    • Ch. 8, The Response to Crises
    • Ch. 9, The Necessity of Scientific Revolutions
    • Ch. 10, Revolutions as Changes of World View
    • Ch. 11, The Invisibility of Revolutions

     

    Questions:

    1. How does Kuhn make they case for the concept of a normal science?, and does also imply that there is somehow an abnormal science?
    2. How or why does the term or concept of paradigm have some relevance in his assumptions?

     

     

    Week 3:

    Readings:

    Kuhn, Thomas S., The Structure of Scientific Revolutions,

    • Ch. 12, The Resolution of Revolutions;
    • Ch. 13, Progress Through Revolutions.

    Scholarly Readings:

    Corbett, Michael and LeRoy, Michael K., Research Methods in Political Science,

    • Ch. 1, A Brief Overview of Research Methods in      Political Science; s
    • Ch. 2, Measurement I: The Basic Ideas;
    • Ch. 3, Measurement II: Types of Data;

     

    Questions:

    1. What relevance or salience do anomalies have for Kuhn?
    1. What are      Lakatose’s contributions to methods and the conduct of research?
    2. How is “The Bell      Curve” a relevant title for Herrnstien’s and Maurray’s work of the same      name?

     

     

    Week 4:

    Readings:

    Corbett, Michael and LeRoy, Michael K., Research Methods in Political Science,

    • Ch. 4, Variables, Variation, and Explanation;
    • Ch. 5, Hypotheses.
    • Ch. 6, Sampling
    • Ch. 7, Data Preparation and Entry

    Scholarly Readings:

    Video:

    “The Ascent of Man” parts 1-5, can be found on YouTube

     

    Questions:

    1. Do Piven and Cloward provide persuasive documentation and sufficient justification for their research and conclusions in “Regulating the Poor?
    1. Does Corbett      provide a sound rationalization for his interpretation of the      structural-organization of the components of the scientific research      process?

     

     

    Week 5:

    Readings:

    Kuhn, Thomas S., The Structure of Scientific Revolutions,

    • Ch. 6, Anomaly and the Emergence of Scientific      Discoveries
    • Ch. 7, Crises and the Emergence of Scientific Theories
    • Ch. 8, The Response to Crises
    • Ch. 9, The Necessity of Scientific Revolutions
    • Ch. 10, Revolutions as Changes of World View
    • Ch. 11, The Invisibility of Revolutions

    Corbett, Michael and LeRoy, Michael K., Research Methods in Political Science,

    • Ch. 8, Descriptive Statistics
    • Ch. 9, Cross-tabulation
    • Ch. 10, Tests of Statistical Significance and Measures      of Association
    • Ch. 12, Cross-tabulation and Statistics: Controlling      for a Third variable.

    Scholarly Readings:

    Questions:

    1. Clark Clifford in his book “Counsel to the President” shares his thoughts on the Presidency and the challenges of foreign policy and international relations for the U.S. How would you interpret his advice and what is your opinion of its value for making foreign policy?
    1. How would you      evaluate Hans Morganthau’s research study focused on world power form the      Cold War Era?
    2. What is your      interpretation of his assumption that, “true power is the ability to      control men’s minds?”
    3. What type of analysis would you      consider the most appropriate to conduct research to understand the nature      of world power?

    Week 6:

    Readings:

    Corbett, Michael and LeRoy, Michael K., Research Methods in Political Science,

    • Ch.13, Correlation and Regression
    • Ch.14, The Overall Research Process.

    Scholarly Readings:

    • See attachments

    Video:

    Please view the “Great Upset Victory of 1948″ video.

     

    Questions:

    1. What are the basic arguments presented by Steve Smith involving the status of the study and research in the field of IR and are they persuasive?
    1. What type of research methodology      and non-traditional approach does Frances Beer use in “The Ecology of      International Violence? Was it successful?

    Week 7:

    Read the following articles and then respond to 3 of the following questions.

    Articles

    • Attached

    Questions (3 Only):

    • How might the      study of Democracy and/or Democratic Government or its related method or      processes be informed by a study or examination of the political apparatus      found in Chicago?
    • Thomas Jefferson      was afraid and expressed fears of a democracy built upon an urban      civilization?, why, and was he entirely justified in his fears?
    • Was he indeed      phrophetic in his fears/predictions about the potential negative      consequences? And his analogies to cities in Europe as it relates to      political corruptions?
    • What      observations does Gosnell make in terms of the potential impacts on the      polity of social economic conditions? How does he interpret their impact      on the Chicago Machine?, as well as comparative impacts on other Machines?
    • Does the New      Deal Legislation of the 1930’s hurt or strengthen the Machine’s grip on      politics in Chicago?
    • What is in fact the      balance sheet of machine politics in an urban center during a period of      economic crisis?
    • Is success      really achieved by the Bosses in resolving class conflicts?
    • In what ways      does the machine keep minor parties from gaining any significant headway?
    • What benefits,      if any can be gained through “chaos” in government?
    • How effective      is/was the machine in acting as a buffer between for the various      governmental agencies which have had to deal with the distressed?
    • How did ward      distributed benefits differ from those from the newly created governmental      program agencies?
    • In what ways and      how successful have legalistic and legislative efforts been in fighting      against the “spoilsmen?”
    • How does Gosnell      suggest/recommend that for efforts at reform to be more successful, that      they must employ more “democratic” methods?, and do more than simply      supply a legalistic framework, merely making it more risky for those      unscrupulous politicians who engage in the perversion of public office for      private profit?
      • Alternative       ways and better regulation of campaign financing
      • A better       educated electorate

    –          Does the shifting demographics of the machine projected and referred to by Gosnell in the years ahead, bode well for the continued demise of the machine?

    Week 8:

    Readings:

    Bloom, Allan, The Closing of the American Mind.

    • See attachments

    Questions:

    1. Are we as professionals, intellectuals and graduate students studying in higher education in American Universities, being caught up in the extreme difficulties expressed by Allen Bloom in “The Closing of the American Mind?”
    2. If so, how might or how does scholarly research, particularly as it has been traditionally conducted and how do the imposition of intellectual boundaries or parameters placed on what we are exposed to in the academe or intellectually, help or hinder us?

     

     

     

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    Organized Crime

    Debate the Pros and Cons of the RICO statute.

    This paper should be a minimum of five (5) pages and utilize a minimum of three (3) sources. In addition to your five (5) page paper, you will need a Cover page and Reference page  ………

     

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    UK Equity and Trusts Law

    Materials for Question 1

     

     

    Equitable Remedies

    Learning Outcomes

    After reading this chapter you should understand:

    1.  the different equitable remedies;

    2.  the circumstances in which the courts will make an order for specific performance;

    3.  when a court might make an order for an interim injunction;

    4.  when a court might make an order for a perpetual (or final) injunction;

    5.  the function of each type of injunction.

     

     

     

    20.1 Introduction

     

    Equity has developed the following remedies:

    1.  Specific Performance

    2.  Injunctive Relief

    3.  Rescission

    4.  Rectification

    5.  Account

     

     

    Originally,  these  were  only  available  when  petitioning  the  Courts  of Chancery, whilst an award of damages was the remedy of the common law courts.   The claim had to be commenced in the Courts of Chancery if the claimant  wanted  an equitable remedy, or in the common law courts if an award of damages was the desired remedy.

     

    These separate  systems  of  administering remedies were  changed  to  a limited  degree by the passing of the Common Law Procedure Act 1854, which granted  the common law courts power to grant equitable remedies. The favour was  returned by the passing of the Chancery Amendment Act

    1858 (now see s50 Senior Courts Act 1981), which gave the Courts of

    Chancery the power to award damages in lieu of equitable remedies.

     

    However,  the  most  significant  alteration  to  the  system  of  separately administering justice came with the Judicature Act 1873.  This removed the need for the claimant to commence their claim in the appropriate court.

     

    Equitable remedies are not available as of right, but only at the discretion of the  court.                    This discretion is exercised on certain settled principles.      For example:

    • they will only be granted where the common law remedy of damages would not adequately remedy the wrong;
    • the court will take into account equitable principles such as the maxims of equity, eg, ‘He who comes to equity must come with clean hands’.

    20.2  Specific Performance

     

    This is an order requiring a party to a contract to carry out his obligations under a contract.

    It can only be sought in respect of positive obligations.  Breach of negative

    obligations may, in appropriate cases, be restrained by injunction.

    Failure to comply with an order for specific performance is a contempt of court, punishable by imprisonment or fine.

     

     

    20.2.1            Damages not adequate

     

    Specific performance will only be granted where an award of damages would not be an adequate remedy.

     

    In Adderley v Dixon (1824) 1 S & S 607, Sir John Leech, V-C, commented:

     

     

     

    “Courts of Equity decree the specific performance of contracts not  upon any distinction between realty and personalty, but because  damages at law may not in the particular case, afford a complete remedy.  Thus a Court of Equity decrees performance of the contract for land, not because of the real nature of the land, but because  damages at law, which must be calculated upon the general money value of land, may not be a complete remedy to the purchaser to whom the land may have a peculiar and special value….

     

     

     

    “…  a Court of Equity will not, generally, decree specific  performance of a contract for the sale of stock or goods, not  because of their personal nature, but because damages at law, calculated upon the market price of the stock or goods, are as complete a remedy to the purchaser as the delivery of the stock or goods contracted for; inasmuch as with the damages, he may purchase the same quality of the like stock or goods.”

     

     

     

    Land (realty), including leases

     

    This is regarded as unique and, therefore, specific performance will be ordered  on a contract to buy or sell land or to grant an estate, such as a lease, or an interest in land.

     

    Although damages would be an adequate remedy for the seller/grantor, the court  treats both parties equally and so orders specific performance for either party.

     

    Personal property (pure personalty)

     

    Specific performance will not generally be granted as such property is not

    usually unique and so damages would be an adequate remedy.

     

    If, however, the item is unique, or if identical property cannot be obtained for some   other  reason,  the  court  may  award  specific  performance.                            For example:

    1.  stocks and shares not available on the market: Duncuft v Albrecht (1841) 12 Sim 189, such as where they are in a private company – see, eg, Oughtred v IRC [1960] AC 206, and Neville v Wilson [1996] 3 All ER 171;

    2.  articles of unusual beauty, rarity and distinction or of peculiar value to the claimant:  Falcke v  Gray (1859) 4 Drew 651 (a Ming vase); Philips v Lamdin [1949] 2 KB 33 (where the plaintiff purchased the defendant’s property, only to discover that an ornate door once in the property had been removed. The court held that the defendant had to take reasonable care to preserve the property and the door had to be returned.)

     

     

     

     

     

    279

     

            Specific performance is granted sparingly for contracts for specific non- unique goods.

     

    Contracts for services

     

    Where the contract is one for provision of a service rather than for sale of goods, it is often difficult to assess adequacy of damages in the same way. In particular, it  can be hard to classify a service as ‘unique’ unless there really is only one person in the world who can perform it.  Instead, the courts tend to focus on whether your losses could be quantified if the service was not performed.

     

    Specific performance of an agreement to provide premises for a National Front  annual conference was thus awarded in Verrall v Great Yarmouth Borough Council [1981] Q.B. 202 as the claimant could not find alternative premises and the political effects of cancelling the conference could not be compensated in damages.   See also Evans v BBC and IBA below, where an interim mandatory  injunction was granted to compel the defendants to screen a party political broadcast for similar reasons.

     

     

     

    20.2.2            Supervision

     

    Specific performance will not be granted where performance of the contract requires constant supervision by the court.

     

    In Co-operative Insurance Society Ltd v Argyll Stores (Holdings) Ltd [1997]  3  All ER 297, the House of Lords allowed an appeal against the decision of the Court of Appeal, where an order had been made for specific performance of a  covenant in a shop lease which required the tenants to keep  the  premises  open  as  a  supermarket  during  the  usual  hours  of business.  (The shop had been closed because it was losing money.)

     

    One ground for the decision of the House of Lords was that it would require constant  supervision  by  the  court.                     Lord  Hoffmann  stated  that  the  real problem was that, particularly for contracts requiring an ongoing activity, the court might have to give an “indefinite series of rulings” to ensure the order was carried  out, as the only means of enforcement is the “quasi-criminal procedure of punishment for contempt”.

     

     

     

     

    20.2.3            Contracts for personal services

     

     

     

     

     

     

     

     

    In any other case than a contract of employment, for example where the contract  is  a  contract  for  services,  equitable  principles  usually  prevent

     

     

     

    280

     

    enforcement. Unlike the Act, this is not an absolute prohibition, but reasons for refusal to enforce are:

    1.  if it would require constant supervision;

     

    2.  if it would be against public policy: De Francesco v Barnum (1890) 45

    Ch D 430, where Fry LJ said the courts did not wish to, “…turn contracts of service into contracts of slavery.”

     

    3.  if it would lead to imperfections in performance: see Megarry J in C. H.

    Giles & Co. Ltd v Morris [1972] 1 W.L.R. 307.

     

     

    Note that a court is also unlikely to grant an injunction (either mandatory or prohibitory) if it would have the same effect as specific performance and specific performance would not be appropriate for the above reasons – see Page One Records Ltd v Britton (t/a The Troggs) [1967] 3 All ER 822.

     

     

     

     

    20.2.4            Mutuality

     

    See 20.2.1 above on specific performance being available to both parties to a  contract relating to land even though damages would be an adequate remedy for the seller.

     

    The principle of mutuality also requires that if one party could not obtain specific  performance, it  should  not  be  available  to  the  other  party,  for example:

    1.  as specific performance will not be awarded against a minor, he cannot obtain such an order himself: Lumley v Ravenscroft [1895] 1 QB 683;

    2.  as a person will not be ordered to carry out an employment contract, he cannot obtain specific performance against the employer.

     

     

     

    20.2.5            Mistake

     

    Although a contract is only rarely declared void or set aside for mistake, a court  may sometimes refuse to order the mistaken party to carry out the contract,  leaving the other party to the remedy of damages (see Contract Manual).

     

     

     

    20.2.6            ‘Clean hands’

     

    A person  seeking  specific  performance  must  come  to  court  with  clean hands.  Essentially, one cannot obtain an equitable remedy if one has acted unconscionably.     The  claimant  must  have  performed,  or  be  willing  to perform, all his own obligations under the contract – see, eg Coatsworth v Johnson (1886) 55 LJQB 220, where specific performance of a contract to grant  a  lease  was refused  where the  tenant, having been allowed into possession of the farm, was in breach of the lease’s requirement to cultivate the farm in a “good and husband-like manner”.

     

     

     

     

    281

     

    20.2.7            Delay or Laches

    There is no statutory limitation period for bringing an action for specific performance (s36(1) Limitation Act 1980), but unreasonable delay will defeat a claim for the remedy – ‘delay defeats equity’:  Eads v Williams (1854) 4

    De G Mac & G 674.  What amounts to an unreasonable delay is dependent upon the circumstances of the case

    20.2.8            Hardship

    Specific performance may be refused if to order it would cause unnecessary hardship to one party or to a third party.  For an extreme example, see Patel v Ali [1984] Ch 283.

    The fact that the order may require a seller to accept a sale price that is less than  the  market  value  will  not  by  itself  count  as  hardship  but  may  if combined with other factors.

     

     

     

     

     

    20.3  Injunctive relief

     

     

    An injunction is an order of the court requiring a person to refrain from doing a  particular act or, less commonly, to do a particular act.                                Like specific performance, the injunction is a remedy in personam.  Injunctions are widely available in many areas of law and are commonly used in contract, tort and family  law.           Special requirements, derived from statute or case law, may apply to the granting of an injunction in a particular area.

     

    The High Court has a power to grant injunctive relief by virtue of s37(1) of the  Senior Courts Act 1981.   A similar power exists for the County Court under s38  of  the County Courts Act 1984 (as amended by s3 Courts and Legal Services Act 1990).

     

     

     

    20.3.1            Rights to be protected

     

    An injunction will only be granted to protect a recognisable legal or equitable right.

     

    In Day v Brownrigg (1878) 10 Ch D 294, the plaintiff was refused an injunction which sought to restrain his neighbour from calling his house Ashford Lodge, which was the name of the plaintiff’s house.  The Court of Appeal held that since no legal or equitable right had been infringed, then no equitable remedy could be granted.

     

    In Paton v Trustees of British Pregnancy Advisory Service [1979] QB

    276, a husband could not obtain an injunction to prevent his wife having an abortion as he had no enforceable legal or equitable right.

     

     

     

     

    282

     

    20.3.2            Types of Injunction

     

    There are two basic types of injunction, which differ in what they require the defendant to do:

    1.  Prohibitory - restraining a person from doing something.

    2.  Mandatory - ordering something to be done or undone.

     

     

    Injunctions may be granted at different stages of the proceedings and may endure for different lengths of time. They may be:

    1.  Final (or perpetual) - where the court makes an order for an injunction at trial.   Even though sometimes called ‘perpetual’, this does not mean that the  injunction endures forever (it may be limited in time); rather it means that the order finally settles a dispute between the parties;

    2.  Interim (or interlocutory) - issued prior to the full trial taking place and effective only until trial or a date specified in the order.

     

     

    Additionally, injunctions may be granted with or without notice:

    1.  With notice - usually, when a party applies for an interim injunction, notice is given to the other party so that both parties can present their respective evidence and arguments for and against the granting of the order at the  hearing.           This is called a ‘with notice’ application.                                                        ‘With notice’ applications used to be called inter partes (between the parties);

    2.  Without notice - where a matter is extremely urgent or there is a need for secrecy (eg for a Search Order or Freezing Order), a party may apply for an injunction ‘without notice’ so that only the applicant appears at the hearing of the application and the other party is not notified of it. ‘Without notice’  applications   used  to  be  called  ex  parte  (of  the  one  part) applications. Ordinary interim injunctions without notice are rare and the courts will only hear them where the case is overwhelming on the merits: Bates v Lord Hailsham of St Marylebone [1972] 1 WLR 1373.

     

     

    If a person’s rights have not yet been infringed, but an infringement is threatened or feared and serious damage likely to ensue, he or she may apply for a quia timet (because he or she fears) injunction.  This is not a separate  category of injunction, but merely indicates that the injunction is sought before the feared infringement or wrong has occurred.

     

    The timeline below indicates the stages at which different remedies are commonly applied for.  Note that it is not exhaustive so, for example, interim injunctions can be applied for before the claim form is issued, which is not indicated on the timeline below.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    283

     

    Threatened breach: apply for quia timet injunction to try and prevent the breach occurring.  This could be mandatory or prohibitory.  It may also be without notice if the matter is sufficiently urgent.

     

     

    Breach occurs.

     

     

     

    Issue claim for breach.  Claim form will explain the breach, outline the evidence,  and  apply  for  final  remedies,  usually  damages,  specific performance, perpetual injunctions etc.

     

     

    Apply  for  interim  injunctions.     These  may  be  interim  mandatory injunctions, interim prohibitory injunctions, search orders, freezing orders etc.  These injunctions will secure the claimant’s position until trial (prevent  further  breaches, prevent destruction of evidence, prevent the defendant moving or dissipating his assets to frustrate judgment against them).

     

     

     

     

    Preparation  for  trial  -  disclosure,  exchange  of  witness  statements, preparation of expert evidence etc.

     

     

     

    Trial commences.

     

     

     

    Court gives decision.  Claimant may be awarded perpetual injunctions (mandatory or prohibitory), specific performance, and/or damages as a final remedy.

     

     

     

     

     

    20.3.3            Non-compliance or breach

     

    Non-compliance or breach of an injunction amounts to a contempt of court. As an injunction acts in personam (against the person or corporation named in the order),  non-compliance or breach is punishable by imprisonment, sequestration of property (in the case of a corporation) or fine.

     

     

     

    20.3.4            Discretionary nature

     

    As with specific performance, injunctions, being equitable remedies, are not available as of right but at the discretion of the court. Also, the bars to equity (such  as  clean hands, delay, hardship, the maxims) may apply to prevent the granting of an injunction (see below).  Damages may be awarded in lieu of, or in addition to, an injunction (s50 Senior Courts Act 1981).

     

     

     

    284

     

    Injunctions are only available where common law remedies are inadequate. Damages will not be adequate where the action complained of is repeated or continuous as, for example, in the tort of nuisance, or where the loss the applicant would suffer is unquantifiable in monetary terms, such as damage to reputation.

     

    The courts are less ready to grant mandatory injunctions.  For an example, see  (under restrictive  covenants in  the  Land  Law  manual) the  case  of Wrotham Park Estate Co Ltd v Parkside Homes Ltd [1974] 1 WLR 798, where  a  mandatory injunction  to  demolish  houses  built  in  breach  of  a restrictive covenant was refused and damages were awarded in lieu.  See also, Jaggard v Sawyer [1995] 1 WLR 269.

     

     

     

    20.3.5            Interim Injunctions

     

    Different  considerations  apply  to  the  granting  of  interim  injunctions  as opposed to final injunctions.  This is because all the preliminary stages for preparation  of  a  case  for  trial  (such  as  disclosure  of  documents  and exchange of witness statements) may not have taken place and the final outcome of the case is not yet known.

     

    As a condition of granting an interim injunction, the court generally requires the  claimant to enter into an undertaking to pay damages which might be awarded at the full hearing if the defendant has suffered damage as a result of the interim injunction and the claimant is found not to have been entitled to it.        The claimant  may be required to deposit a specified sum or give security to cover such damages.

     

    Conversely, as a condition of refusing an injunction, the court may require the defendant to enter into an undertaking as to damages.

     

    The undertakings are given to the court and breach is a contempt of court.

     

     

     

     

     

    20.3.6        Freezing Injunctions and Search Orders

     

     

    These particular forms of injunction are equitable remedies which have been developed quite recently.

     

    In Bank Mellat v Nikpour [1985] FSR 87, Donaldson LJ described these two kinds of injunction as, “the law’s two ‘nuclear’ weapons.”

     

    They are normally applied for without notice (formerly ex parte) because of the need for ‘surprise’.

     

    They can generally only be granted by the High Court.

     

    They  are  often,  but  not  exclusively,  granted  at  the  interim  stage  of proceedings,  before  full  trial  of  the  case,  as  a  means  of  securing  the claimant’s position before trial.

     

     

     

     

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            20.3.7            Defences

     

    1.  Claimant’s conduct

    ‘He who comes to equity must come with clean hands’, ie, the claimant will be refused an injunction if the claimant breaches his or her obligations, or has  behaved unfairly in relation to the matter in hand.  In Argyll v Argyll [1967] Ch 302, the Duchess of Argyll was entitled to an injunction restraining a breach of confidence by her former husband despite the fact that it was her conduct which had led to the divorce.

     

    ‘He who seeks equity must do equity’, ie, the claimant must be willing and able to  carry out his own obligations: Measures v Measures [1910] 2 Ch

    248.

     

    2.  Delay or Laches

    In HP Bulmer and Showerings Ltd v J Bollinger SA [1977] 2 CMLR 625, it was stated by the Court of Appeal that “inordinate” delay might defeat a claim for injunctive relief.

     

    Delay will more readily mean that an interim (as opposed to a perpetual) injunction is refused as the court is likely to think that the matter can wait until trial.

     

    An unexplained delay of a few months was one reason for refusing an interim injunction in Shepherd Homes Ltd v Sandham [1971] Ch 340.

     

    A without notice injunction can only be granted where the case is extremely urgent; any delay is likely to suggest that this is not the case.

     

    In the case of perpetual injunctions, there are conflicting views on the effect of  delay.       It has been said that delay alone will not defeat a claim to an injunction unless the claimant’s claim itself is barred.

     

    However, delay may be relevant to acquiescence.

     

    3.  Acquiescence

    Has there been something more than mere delay to suggest the claimant does not intend to rely on his legal rights, on which the other party has acted to his  prejudice? – HP Bulmer and Showerings Ltd v J Bollinger SA [1977] 2 CMLR 625, per Goff LJ.

     

     

     

     

     

     

     

     

    4.  Hardship

    Damages may be awarded in lieu of an injunction if the injunction would cause serious hardship to the defendant.  Hardship may be more important in relation to mandatory injunctions, where it may be weighed against benefit to the claimant.

     

    In appropriate cases, the court may suspend the operation of an injunction if immediate compliance would be impossible or cause undue hardship for the defendant.

     

    Hardship to third parties may also be a reason for refusing an injunction, as in  Maythorn v Palmer (1864) 11 LT 261.                                The defendant entered into employment with a third party in breach of a covenant with the plaintiff.  The plaintiff was refused an injunction because of the hardship which would be caused to the third party who had not been aware of the covenant.

     

     

     

     

     

    20.4  Interim Prohibitory Injunctions

     

     

    The general guidelines for the granting of interim injunctions are found in the leading  House of Lords case of American Cyanamid Co v Ethicon Ltd [1975] AC  396.    For certain types of interim injunction (such as interim mandatory injunctions) and in certain situations, the court will depart from these guidelines and apply different tests (the main situations in which the guidelines  are  not followed are summarised in paragraph 20.4.2 below.) However, the guidelines remain fundamental to the consideration of interim prohibitory  injunctions.   It is essential to understand the way they operate and the principles the court will consider in deciding whether to exercise its discretion and grant an injunction.

     

     

     

    20.4.1            The American Cyanamid guidelines

     

    Before American Cyanamid, it was necessary, as a first step in obtaining an interim injunction, for the claimant to establish a prima facie case that his or her rights had been infringed.  (The term ‘prima facie case’ means that, on the  evidence as it stands at the time of the application, the claimant would on a balance of probabilities succeed in its claim (Cream Holdings Ltd  v  Banerjee  [2004]  UKHL  44).   This  is  a  high  standard  to  meet.) However, in American Cyanamid, Lord Diplock laid down new “guidelines” which  (although not applied universally) should generally be followed. The main thrust of the guidelines is that the courts avoid considering the merits of the case at the interim stage of the proceedings.

     

    The guidelines are as follows:

    1.  The court must be satisfied that the claimant’s case is not frivolous or vexatious and that there is a serious question to be tried.

    This guideline is aimed at getting rid of poor cases and the threshold is relatively low.  There must be a real question between the parties to be determined at trial ie it must be established that there is some prospect

     

     

     

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    of success (Mothercare v Robson Books [1975] FSR 466).     If the prospects of success are so small that they lack substance in reality, then the claimant’s claim for an injunction will fail, because there is no serious question to be tried.

    To determine whether a case passes this threshold, it is necessary to examine the actual claim made ie to establish that there is a real right asserted and a substantial infringement alleged.

    2.  If the above threshold is reached, the court then goes ‘on to consider whether the balance of convenience lies in favour of granting or refusing’ the interim injunction.                                           In effect, the court engages in a balancing exercise to minimise the risk of doing injustice.

    The   court   considers    whether    either    party    could   be   adequately compensated  by  an  award  of  damages  (the so-called adequacy of damages element).

    a)  adequacy of damages:

    i)    on the one hand, the court will consider whether, if it refuses an injunction and the claimant wins at trial, he or she could be adequately compensated by damages for any loss caused by the defendant’s actions prior to trial;

    ii)  if so, and the defendant would be in a financial position to pay, an interim injunction would usually be refused;

    iii)  on  the  other  hand,  the  court  will  consider  whether,  if  the injunction  is  granted  and  the  claimant  loses  at  trial,  the defendant could be adequately compensated by the claimant’s undertaking in damages for any loss caused by the granting of the interim injunction.  (The court will generally require the party applying for an injunction to give an undertaking in damages to compensate   the                        other             party   for    losses    suffered    as    a consequence of the injunction if it is later held to have been wrongly granted – see below);

    iv) if so, and the claimant would be in a financial position to pay, there would be no reason to refuse an interim injunction;

    b)  other factors:

    The court may also consider other relevant matters affecting the balance of convenience in deciding whether to grant the injunction. Lord Diplock stated that ‘it would be unwise to attempt even to list all the various  matters which may be taken in to consideration’ but matters which the courts have found important include:

    –     loss of employment – Fellows and Son v Fisher [1976] QB 122

    –     damage    to    the    goodwill    of    a    business     –    Associated

    Newspapers plc v Insert Media Ltd [1991] 1 WLR 571

    –     the  closing  down  of  a  business  –  Potters-Ballotini  Ltd  v

    Weston-Baker [1977] RPC 202

    –     preserving a substantial investment – Catnic Components Ltd v

    Stressline Ltd [1976] FSR 157;

    c)  There may also be special factors to be taken in to consideration in the  balance of convenience in the particular circumstances of the individual case.

     

     

     

     

     

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    3.  Where the balance of convenience does not clearly favour one party or the other, the deciding factor will be the preservation of the status quo ante.

    This is generally the state of affairs before the last change and would thus generally favour the granting of the injunction as the ‘last change’ is usually  the   commencement  or  commission  of  the  alleged  wrong (Garden Cottage Foods Ltd v Milk Marketing Board [1948] AC 130). However, this is not conclusive.  The position may alter if the claimant delays his application, as then the last state of affairs would actually be the alleged wrong, and the  status quo would thus favour letting the wrong continue and refusing the  injunction (Shepherd Homes Ltd v Sandham [1970] 3 All ER 402).  The key point to note here, therefore, is that the ‘status quo’ is simply a point in time.   It  is not fixed and can change according to the actions of the parties.

    4.  As a last resort, the court may consider the merits of the case. However, the court will not consider the merits unless the balance of convenience is otherwise even and it is apparent on the facts that the strength of one party’s case is disproportionate to that of the other party.

     

     

     

    20.4.2             Exceptional Cases – where American Cyanamid

    guidelines do not apply or are modified

     

    Because the types of cases in which injunctions may be sought are so diverse, the American Cyanamid guidelines do not always operate to bring about the most appropriate or just result.  Accordingly, categories of cases have arisen where the American Cyanamid guidelines are modified or do not apply at all.  Further, new categories may arise in the future.

     

    The American Cyanamid guidelines are still the most important for the purposes of this course, but it is useful to have a basic knowledge of the types  of  cases where it is unlikely to apply.                                                    Some examples of these categories are as follows:

    1.  Where trial of the action is unlikely

    If the granting or refusal of an injunction would, in effect, dispose fully of the action in favour of whichever party is successful in the application. In this case, the court will look at the relative strength of each party’s case and  an   injunction   will  be  granted  only  if  the  applicant’s  case  is overwhelming on the merits (Cambridge Nutrition Ltd v BBC [1990] 3

    All ER 523; Cayne v Global Resources [1984] 1 All ER 225).

    2.  Defamation

    An injunction will not be granted if the alleged libel is not obviously untruthful and the defendant sets up a defence of justification (unless this defence is bound to fail) (Greene v Associated Newspapers Ltd [2005]  1  All  ER  30.)    (See  the  Tort  Manual  for  an  explanation  of defamation and the defence of justification.)

    3.  Freedom of Expression/Privacy

    Article 10 of the European Convention on Human Rights protects the right to freedom of expression.  Section 12(3) Human Rights Act 1998 provides that  no relief to restrain publication before trial, which might affect the Article 10(1) right, is to be granted unless the court is ‘satisfied

     

     

     

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            that the applicant is likely to establish that publication should not be allowed’.  (Cream Holdings Ltd v Banerjee [2004] UKHL 44; Douglas v Hello! Ltd [2005] EWCA Civ 595.)

    4.  Industrial disputes

    These are governed by s 221(2) Trade Union and Labour Relations (Consolidation) Act 1992.   Full consideration of this Act is beyond the scope of this course.

    5.  Claims   against   public   authorities   where   exercising   statutory powers and duties

    In Smith v ILEA [1978] 1 All ER 411, it was held that an applicant for an injunction in these circumstances needed an extremely strong case on the merits.

    6.  Certain plain and uncontested breaches

    Where it is clear that the defendant is acting unlawfully ie where there is a  plain  and uncontested breach of a clear negative convenant or an admitted trespass (Hubbard v Pitt [1976] QB 142).

    7.  Freezing injunctions and interim mandatory injunctions

    Where a freezing injunction or an interim mandatory injunction (including a search order) is sought, different tests apply. See paragraphs below.

    8.  Certain intellectual property law cases

    Generally, an application for an interim prohibitory injunction for breach of copyright will be dealt with using the American Cyanamid guidelines but  in   some  special  copyright  cases  (and  some  other  intellectual property  cases)  the  guidelines  in  American  Cyanamid  will  not  be applied  or  will  be  modified.  These  very  special  circumstances  are outside the scope of this course.

     

     

     

     

     

     

     

     

     

     

     

     

     

    20.5  Interim Mandatory Injunctions

     

     

    A stronger case is needed for the grant of an interim mandatory injunction. The Court of Appeal in Locabail International Finance Ltd v Agroexport [1986] 1 WLR 657 approved the test suggested by Megarry J in Shepherd Homes Ltd v Sandham [1970] 3 All ER 402, that the court must feel, ‘a high degree of assurance  that at the trial it will appear that the injunction was rightly granted’.  In Locabail, the Court of Appeal stated that this test was not  affected  by  the  decision  in  American  Cyanamid,  and  that  interim mandatory  injunctions  were  one  of   the   special  categories  of  interim injunctions where American Cyanamid would not apply.

     

     

     

     

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    An interim mandatory injunction was granted in Evans v BBC and IBA (The Times,  February 26th  1974) to compel the defendants to screen a party political broadcast by Plaid Cymru just before an election.  This was a clear case where damages would not have been an adequate remedy.

     

    See also Sky Petroleum v VIP Petroleum Ltd [1974] 1 WLR 576, where a negative injunction, which was mandatory in effect, was granted.

     

     

     

     

     

     

    20.6  Search Orders

     

     

    These are mandatory injunctions designed to ensure that the defendant does  not destroy or remove evidence, in the form of documents or items, which could be essential to the claimant’s case.

     

    They order the defendant to allow the claimant and his representatives to enter  the  defendant’s  premises  (business  or  residential)  to  search  for, inspect, photograph or remove such evidence.

     

    Failure to comply with the order is a contempt of court and likely to lead to adverse inferences being drawn at the trial.

     

    Search orders are particularly useful in cases concerning such matters as breach of confidence or copyright and have been widely used in relation to

    ‘pirate’ recordings and videos.     They are also commonly used in cases involving fraud, where there is a risk that the defendant will destroy key documents to cover up any evidence of fraudulent behaviour.  The order is made to safeguard vital evidence needed to prove the claimant’s case.

     

    The first such order was made in EMI Ltd v Pandit [1975] 1 WLR 302, an action  for breach of copyright, where an order was made requiring the plaintiff  to  be   allowed  to  enter  the  defendant’s  property  to  inspect, photograph and remove offending items.

     

    In Anton Piller KG v Manufacturing Processes Ltd [1976] Ch 55 (see Maudsley  & Burn’s Cases and Materials pp 1025-1027) the Court of Appeal made an order which required the defendants to permit the plaintiffs to  enter  their   premises  to  inspect  documents  relating  to  confidential information concerning the plaintiff’s electrical equipment, which the plaintiff feared the defendant would pass to a competitor.

     

     

     

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    The practice of granting such orders was approved in principle by the House of Lords in Rank Film Distributors Ltd v Video Information Centre [1982] AC 380.

     

    Jurisdiction is now governed by s7 of the Civil Procedure Act 1997, and they are also dealt with in the Civil Procedure Rules 1998.

     

    As already stated, a stronger case is required for granting any mandatory injunction, but search orders are seen as draconian and particularly stringent requirements have, therefore, been laid down for granting them.  The order can have a devastating effect on a defendant’s business since such an order is regarded as a serious stigma on the defendant’s commercial reputation, which may result in others refusing to deal with him and banks refusing to extend credit.   The order  often authorises the removal of the defendant’s stock-in-trade, which may put  him  out of business, or the applicant may learn  of  confidential  information   which  would  give  him  a  commercial advantage.

     

    In view of this, Ormrod LJ, in the Anton Piller case said the order should be made only “where there is no alternative”, that is to say, it should be treated as a remedy of last resort, and he specified 3 pre-conditions for granting the order:

    1.  an extremely strong prima facie case (this is a much higher standard than for ordinary mandatory interim injunctions);

    2.  very serious damage, potential or actual to the claimant;

    3.  clear evidence that the defendant has incriminating documents or items in his possession and that there is a real possibility that he may destroy them (a ‘fishing’ expedition to find out what the defendant has will not be allowed).

     

     

    Lord Denning MR added a requirement that the inspection will do no real harm to the defendant or his case.

     

    In Lock International plc v Beswick [1989] 1 WLR 1268, Hoffmann J, referred to the need for, “proportionality between the perceived threat to the plaintiff’s rights and the remedy granted”.

     

    Regarding  the  ‘real  possibility  of  destruction’,  this  may  sometimes  be inferred from the defendant’s conduct, for example, in ‘pirating’ claims and commercial fraud.           However, in Lock International plc v Beswick, the plaintiffs claimed that their former employees, who were now competing with them,  were using the plaintiff’s trade secrets and confidential information; but  the   defendants  made  a  successful  application  to  have  the  order discharged.   The  judge said they were not ‘fly-by-night video pirates’, but former long-term employees with families and mortgages, who had openly said that they were entering into competition.

     

    The claimant must make full and frank disclosure to the court of all material matters within his knowledge and will be required to give an undertaking in damages, with security if appropriate.

     

     

     

     

     

     

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    Requirements for enforcement include:

    1.  order to be served and carried out in presence of a ‘supervising solicitor’ who  is  experienced  in  such  matters,  is  not  a  member  of  the  firm representing the claimant and who must explain things to the defendant in a fair and accurate manner;

    2.  entry must generally take place between 9.30 am and 5.30 pm so the defendant can seek legal advice;

    3.  search  must  take  place  in  the  presence  of  the  defendant  or  a responsible employee;

    4.  a list must be made of any items to be removed and the defendant given an  opportunity to  check it;  (in  Columbia  Pictures Inc  v  Robinson [1986] 3  All  ER 338, aggravated damages were awarded for seizing items which were not covered by the order);

    5.  if the premises are likely to be occupied by a woman alone, one member of the party should be a woman.

    (Universal Thermosensors ltd v Hibben [1992] 1 WLR 840.)

     

    If the solicitor in charge of the execution of the order fails to comply with the exact terms of the order, s/he will be in contempt.

     

    The defendant may apply to the court at short notice for a variation or discharge of the order, provided entry to the premises has been allowed but the search has not commenced.

     

    In Rank Film Ltd v Video Information Centre [1982] AC 380, the House of Lords  held that a search order should not require a defendant to disclose information which would incriminate him. This right was removed as regards proceedings for  infringement of intellectual property rights by s72 Senior Courts Act 1981.

     

     

     

    Search Orders and the Human Rights Act 1998

     

    It  was  thought  that  the  search  order  might  conflict  with  the  European Convention on Human Rights (incorporated into English law by the Human Rights Act 1998).  However, the European Court of Human Rights held in Chappell v United Kingdom, judgment of 30th  March 1989, Series A, No.

    152; (1990) 12 EHRR 1, that the aim, namely, to protect the rights of others, was  legitimate and the order met the requirements of Article 8 (right to

    respect for private and family life) as being in accordance with law.   The necessary safeguards existed to ensure that action was only taken where it was necessary in a democratic society.  The undertaking given by solicitors for  claimants  seeking such an order was sufficient to ensure the proper

    supervision of the implementation of any order granted by the court.     It

    remains to  be  seen, however, whether  article 6  (right to  a  fair  trial) is breached by the application for a search order.

     

    An application for a search order is often accompanied by a claim for a freezing injunction.

     

     

     

     

     

     

     

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    20.7  Freezing Injunctions

     

     

    These are prohibitory injunctions ordering the defendant not to dispose of or remove  his assets from the jurisdiction before trial and thus defeat the effectiveness of any judgment in the claimant’s favour. It is important to note that as  equitable remedies act in personam, a freezing injunction has no effect on the assets themselves.  The defendant could still physically deal with his assets under a freezing injunction, but would be in contempt of court if he did so.

     

    The first reported grant of such an injunction was in Nippon Yusen Kaisha v  Karageorgisi  [1975]  3  All  ER  282,  which  was  followed  in  Mareva Compagnia Naviera SA v International Bulkcarriers SA [1975], 2 Lloyd’s Rep.  509, where the  owner of  a  ship (the ‘Mareva’) let  it  to  a  foreign charterer.  The charterer defaulted on payment.  The ship owner discovered that the charterer  had money in an English bank account and sought an injunction freezing the account.  The order was granted to stop the charterer from moving the money abroad before the case was heard.

     

    Both the above cases were decided by the Court of Appeal under the leadership of Lord Denning, M.R., who later wrote of the Mareva injunction as, “the greatest piece of judicial law reform in my time.” (‘The Due Process of Law’ (1980, Butterworths)).

     

    Jurisdiction is now governed by s37, Senior Courts Act 1981 and such relief may be granted where, “it appears to the court to be just and convenient to do so”.  However, the requirements which have been developed are stricter than for other  interim injunctions.                                                             The claimant must, according, eg, to Derby & Co Ltd v Weldon [1990] Ch 48, show that:

    1.  he has a good arguable case;

    2.  the defendant has assets within the jurisdiction (or without, where an extra-territorial order is sought); and

    3.  there is a real risk that they will be removed or dissipated.  In Customs and Excise Commissioners v Anchor Food Ltd [1999] 1 WLR 1139, Neuberger J said that what is required is a good arguable case for a risk of dissipation.

     

     

    The claimant must make a full and frank disclosure of all material matters and, in a ‘without notice’ application, he should fairly state the points made by the  defendant against his claim:                                                Third Chandris Shipping Corpn v Unimarine SA [1979] QB 645.

     

    In the case of Fourie v Le Roux [2007] UKHL1 it was confirmed that a freezing injunction applied for without notice would not normally be granted if the substantive proceedings had not yet been issued, or an undertaking to issue such proceedings provided with the injunction application.

     

    The claimant  will  be  required  to  give  an  undertaking in  damages, with security if appropriate.

     

    As ancillary to the order, the court may grant an order requiring disclosure of the defendant’s assets and their whereabouts.

     

     

     

     

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    The defendant will be allowed to keep a reasonable amount of money for living and business expenses.

     

    The defendant may at any time apply for the injunction to be discharged.

     

    In an appropriate case, the order will freeze assets outside England and Wales:  Derby & Co. Ltd v Weldon (Nos 3 & 4) [1990] Ch 65.  See also Re BCCI SA (No  9) [1994] 3 All ER 764, where a world-wide Mareva was granted against a director and an employee of BCCI whom the liquidators sought to make  personally  liable for BCCI’s debts on the basis of alleged fraud by them in the management of the bank.

     

     

     

     

     

    20.8  Rescission

     

     

    Rescission is the right to have a contract or voluntary deed set aside in certain  circumstances.  Rescission brings the contract to an end and puts the parties back to their pre-contract position – restitutio in integrum.

     

    The right to rescind arises where the contract is voidable at the instance of one  of  the  parties  because  of  some  vitiating  factor  at  the  time  of  its formation.        When  that  party  repudiates  the  contract,  ie,  indicates  his intention not to be bound by it, it is rescinded.  Until that time it is valid and rights (including third party rights) may arise under it.

     

    Although the contract is rescinded by the party’s repudiation, an order for rescission may be made by the court.  The party repudiating may apply to the court for an order, for example if it is clear that the other party does not accept his repudiation.  Alternatively, the matter may come before the court because the other  party does not accept rescission and sues for specific performance or damages; rescission may then be used as a defence. There is  also the  possibility that  the  court’s  assistance may  be  required over restoring the parties to their original positions.

     

    For more on Rescission, see the Contract Manual.

     

     

     

     

     

    20.9  Rectification

     

     

    Where the parties have reached an agreement, which has been put in writing, the court may order rectification of the written agreement if it does not correctly embody what was agreed.

     

    For more on Rectification, see Contract Manual.

     

     

     

     

     

     

     

     

     

     

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    20.10 Account

     

     

    The remedy of account may be used to require:

    1.  a trustee or other fiduciary to account for any incidental profit he has made in breach of his fiduciary duties – Williams v Barton [1927] 2 Ch

    9, Boardman v Phipps [1967] 2 AC 46 (see further in Chapter 12);

    2.  an agent or other fiduciary to account for a bribe or secret profit – A-G

    for Hong Kong v Reid [1994] 1 All ER 1;

    3.  a person to account for profits for the unauthorised use of information in breach  of confidence – Her Majesty’s Attorney-General v Guardian Newspapers Ltd (No 2) [1988] 3 All ER 545 (the Spycatcher case); see also, Her Majesty’s Attorney-General v Blake [2000] 4 All ER 385 on similar facts.

     

     

    In these cases, account seems to be used as a substantive remedy.

     

    In other cases, an account is ordered to ascertain the amount owing, eg, to calculate:

    1.  the amount owing to a principal by his agent;

    2.  the losses suffered as a result of a breach of trust arising from a failure to act;

    3.  the sums owing to co-owners of land.

     

     

     

     

     

    Materials for question 2

     

     

     

     

     

     

     

     

     

     

    Implied Trusts of the Home

     

     

     

     

     

     

    Learning Outcomes

     

     

    By the end of this chapter, you should be able to:

    1.  identify the situations when a person might need to rely on implied trusts in order to claim an interest in a home;

    2.  identify the type of conduct that will give rise to a constructive trust in the context of shared homes;

    3.  explain  the  different  approaches  to  quantification  of  interests  under resulting and constructive trusts;

    4.  distinguish     between    resulting    trusts,    inferred    common   intention constructive trusts, express common intention constructive trusts and proprietary estoppel.

     

     

     

     

     

     

     

     

     

     

     

     

     

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    12.1  Introduction

     

     

    One of the areas in which trusts have had a particularly vital role to play in recent  years has been in the context of disputes over the shared home. Such disputes can arise either where the property is registered in the names of both parties but there has been no declaration of their beneficial interests or where legal title is registered in the name of one party only but the other claims a beneficial interest in the property.

     

    The problem may arise where the relationship breaks down or where a third party  makes a claim against the property. The latter may occur where a mortgagee  seeks to  enforce  his security over the property, or  where  a trustee in  bankruptcy wishes to claim the home to meet the bankrupt’s debts.

     

    Where the  claim  arises  on  divorce, the  court  has  a  wide  discretion  to reallocate property rights between spouses under the Matrimonial Causes Act 1973.  The Civil Partnership Act 2004 gives similar powers to the court on dissolution of a civil partnership.

     

    However, these statutory provisions will be of no assistance to unmarried different sex couples.  Nor will they assist a spouse where the claim is by a third  party, such as a mortgagee.  In those cases, beneficial ownership is ascertained  by  applying  trust  principles.                                                         However,  the  principles  differ depending on whether you are dealing with a property registered in joint names or a property registered in the name of one party only, and these two situations will therefore be considered separately below.

     

     

     

     

     

    12.2  Property registered in the names of both parties

     

     

    Where the property is registered in the names of both parties, they will both have a beneficial interest in the property.  The only question the court needs to address is the size of that interest.

     

    If the parties have expressly declared what their interests are, for example in the  conveyance or a separate declaration of trust, that will be deemed conclusive: if the deed “declares not merely in whom the legal title is to vest but in whom the  beneficial title is to vest that necessarily concludes the questions between the spouses for all time . . .” per Lord Upjohn in Pettitt v Pettitt [1970].

     

     

     

     

     

     

    156

     

    For example, the conveyance may say that the vendor conveys the land to M and  W in fee simple to hold as beneficial joint tenants (or tenants in common equally or in certain stated shares).

     

    However, a declaration of the beneficial interests needs to be evidenced in writing  to comply with s53(1)(b) Law of Property Act 1925 or it will be unenforceable; per Lord Diplock in Gissing v Gissing:

     

     

     

    “If it is not in writing it can only take effect as a resulting, implied or constructive trust to which that section has no application” (s53(2)).

     

     

     

    Where there has been no express declaration of trust, the principles which apply  to ascertaining the beneficial interests of co-owners of the legal title were set out by the House of Lords in Stack v Dowden [2007] 2 AC 432.

     

    The House of Lords confirmed that equity follows the law and therefore the normal  presumption will be that, where legal title is in joint names, the beneficial interests will be held jointly (i.e. equally) as well.  However, this is only a  presumption and can therefore be rebutted by evidence that the parties  intended  their beneficial interests to be different from their legal interests.  The burden of proving this will be on the person claiming that their beneficial interests should be apportioned differently.

     

    To rebut the presumption of equal shares, the courts must examine the parties’  shared intentions, in light of their whole course of conduct.                                The starting point is therefore to presume a 50/50 split, unless the whole course of conduct between the parties indicates that they intended different shares.

     

    The House of Lords also confirmed that it would only be in “very unusual” cases that the presumption of equal shares would be rebutted and the fact that the  parties’ financial contributions were unequal would not, by itself, suffice to rebut the presumption.

     

    However, the House of Lords considered this to be just such an “unusual” case.   Whilst stressing that “many more factors than financial contributions may be  relevant”, the majority were particularly influenced by the fact that Ms  Dowden  had  contributed significantly more to  the  acquisition of  the property and the parties had kept their finances rigidly separate.  This was considered sufficient evidence to demonstrate the parties had not intended equal shares and the  House  of Lords accordingly confirmed the Court of Appeal’s 65/35 split in favour of Ms Dowden.

     

    Exactly which cases will be deemed sufficiently “unusual” to depart from the presumption of equal shares is unclear.  In Fowler v Barron [2008] WTLR

     

     

     

     

    157

     

    819, the Court of Appeal held that a man who had paid the deposit, all the mortgage repayments and all direct outgoings on the property was unable to rebut the presumption that the beneficial interests were held jointly with his partner.       In  Adekunle v Ritchie [2007] BPIR 1177, involving a purchase between mother  and  son, the presumption was rebutted on the basis that the primary purpose of the acquisition was as a home for the mother, even though  the  son  also  lived  there  and  contributed  to  the  mortgage,  and therefore there was no intention that their interests should be equal.  But in Jones v Kernott [2010] EWCA Civ 578, the majority of the Court of Appeal (overturning   Nicholas  Strauss   QC’s   decision)   found   that   there   was insufficient evidence to rebut the presumption of equal shares, despite the fact that K had moved out of the property and made no further contributions to the mortgage or outgoings for over 12 years.

     

    Also note Laskar v Laskar [2008] 1 WLR 2695, suggesting that where property is bought as an investment rather than as a joint home, Stack v Dowden does not apply.

     

     

     

    12.3  Property registered in the name of one party only

     

     

    The situation being addressed here typically arises where a couple share a property as their home but only one of them is the legal owner of the home and the other claims a beneficial interest in it.

     

    For convenience, the legal owner is taken to be the man and the person claiming a beneficial interest in the home is taken to be the woman. It can, of course,  be the other way round (as in Pettitt v Pettitt [1970] AC 777 and Thomas v  Fuller-Brown [1988] 1 FLR 237), or a same-sex couple (as in Tinsley v Milligan [1993] 3 All ER 65), or other family relationships (as in Bull v Bull [1955] QB 234 – mother and son). All these cases are discussed below.

     

    Where the property is conveyed to one party only, he will be presumed to be the owner of the whole beneficial interest as well (Gissing v Gissing [1971] AC 886;  Stack v Dowden.)   A claimant will therefore need first of all to establish that they have an interest in the property at all, before they can go on to prove the size of that interest.  This time, the courts have two separate questions to address:

    1.  whether the claimant can establish an interest in the property; and, if so

    2.  how that interest should be quantified.

     

     

     

     

    158

     

    It is helpful to deal with these questions separately.

     

     

     

    12.3.1            Establishing an interest under an implied trust when legal title is in one name only

     

     

     

    “Any claim to a beneficial interest in land by a person . . . in whom the legal estate is not vested must be based upon the proposition  that the person in whom the legal estate is vested holds it as trustee upon trust to give effect to the beneficial interest of the claimant as cestui que trust”

     

     

     

    per Lord Diplock in Gissing v Gissing at 904.

     

     

     

    If there is no express trust, the woman must base her claim to a share in the property on a beneficial interest under an implied trust.

     

    An implied trust may arise in certain situations where it would be inequitable for the legal owner to claim full beneficial ownership.

     

    The term “implied trusts” covers both resulting trusts and constructive trusts, with which we are concerned here.

     

     

     

    Resulting trusts

     

    We have already considered the well-established idea of purchase money resulting trusts (Chapter 10). These traditionally involve a contribution to the initial cost of the property, e.g. W pays all or some of the purchase price for property conveyed into the name of W and M or (more often in the context of the shared home) M alone. These traditional resulting trusts arise from the presumed intention of the contributing party.

     

    In Bull v Bull [1955] QB 234, Mrs Bull paid part of the purchase price of a house where she and her son lived. The son paid the balance and the house was conveyed into his sole name. Later, the son married and Mrs Bull senior and her daughter-in-law fell out. The son brought proceedings to turn out his mother.

     

    The Court of Appeal held that, as the mother had not intended a gift to her son, there was a resulting trust. Denning LJ held that as a result of this the son and mother were equitable tenants in common.

     

     

     

     

    159

     

    Under the resulting trust, W’s interest will bear the same proportion to the value  of the property as her contribution bore to the purchase price. W’s interest is generally set at the date that the property is acquired.

     

    This approach does not sit easily with the more usual modern method of acquiring a home by means of a loan secured by mortgage. Taking out a mortgage in your name is generally regarded as contributing the share of the purchase price attributable to that mortgage, but there have been difficulties in  assessing contributions by way of later mortgage repayments.                                                                            This is illustrated  by  Cowcher  v  Cowcher  [1972]  1  WLR  425.  Mrs  Cowcher originally contributed one third of the purchase price and Mr Cowcher took on responsibility for the loan repayments for the balance. Mrs Cowcher later paid some  of the mortgage instalments. Following divorce, she claimed a half  share  as  reflecting  her  overall  contribution  to  the  payment  of  the mortgage.

     

    It was held that Mrs Cowcher was entitled to a one third beneficial interest because that was her interest under the original resulting trust, established on acquisition of the home.

     

    Tinsley v Milligan (HL) demonstrates that later mortgage payments can be taken into account in a resulting trust if they could have been anticipated at the outset, but note the Court of Appeal decision in Curley v Parkes [2004] EWCA Civ 1515, which held that for a resulting trust, payments towards the purchase price had to be made at the time of acquisition of the property and the recent decision of the High Court in Samad v Thompson [2008] EWHC

    2809 (Ch), where later mortgage payments were found to give rise to a constructive  trust rather than a  resulting trust even though it  had been agreed between the parties from the outset that the non-legal owner would be responsible  for all the mortgage payments.  Samad v Thompson has subsequently been applied by the High Court in Close Invoice Finance Ltd v Abaowa [2010] EWHC  1920 (QB), but as none of these cases refer to Tinsley v Milligan, it is uncertain which view will prevail.

     

    Arguably, it is to avoid the rigidity of the resulting trust that the courts have more  often  resorted  to  “constructive”  trusts  to  determine  questions  of beneficial  ownership of the family home.                                                  Note that in Stack v Dowden, Lord Walker and Baroness Hale both doubted the use of resulting trusts in the context of the family home.  Baroness Hale reiterated this opinion in the Privy  Council in Abbott v Abbott [2007] UKPC 53, stating that “It is now clear that the  constructive trust is generally the more appropriate tool of analysis” in family home cases.  While this may suggest that resulting trusts will be of limited application in the future in the context of the shared family home, Laskar v Laskar (above) demonstrates that resulting trust principles will  still  apply  to  commercial  parties  and  to  property  bought  by  family members as an investment rather than a home.

     

     

     

    Constructive trusts

     

    Constructive trusts of the home are said to be based on the common intention of the parties.

     

     

     

     

     

    160

     

    They arise where there is some sort of express or inferred agreement, arrangement,  understanding  or  common  intention  to  share  ownership (Pettitt v Pettitt, Gissing v Gissing, Lloyds Bank plc v Rosset, Tinsley v Milligan), coupled with some relevant conduct by the non-legal owner.

     

    The leading authority is the decision of the House of Lords in Lloyds Bank Plc  v  Rosset  [1991]  AC  107.  According  to  Lord  Bridge,  the  common intention can be either:

    1.  express, i.e. based on evidence of express discussions between the parties; or

    2.  inferred from conduct.

     

     

     

     

     

    Express common intention constructive trusts

     

    Express agreement

     

    According to Lord Bridge in Lloyds Bank v Rosset:

     

     

     

    “The finding of an agreement or arrangement to share … can only, I think, be based on evidence  of express discussions  between the  partners, however imperfectly remembered and however imprecise their terms may have been”.

     

     

     

    Typically  such  agreement/bargain  would  arise  “prior  to  acquisition  or exceptionally at some later date” (Rosset, per Lord Bridge at 132). (For an example of a later agreement giving rise to a constructive trust, see Clough v Killey [1996] 72 P&CR D22.)

     

    The agreement is viewed objectively and, according to Lord Bridge, must relate  to  sharing ownership of the house rather than simply sharing the benefits of living together.

     

    Whilst Eves v Eves [1975] 1 WLR 1338, Grant v Edwards [1986] Ch 638 and  Hammond v Mitchell [1991] 1 WLR 1127 demonstrate the lengths courts  have  been  prepared  to  go  to  in  reading  an  intention  to  share ownership into discussions, the more recent Court of Appeal case of James v Thomas [2007] EWCA Civ 1212 suggests a more restrictive approach.

     

     

    161

     

    See  also  Walsh  v  Singh  [2009]  EWHC  3219  (Ch)  and  Thomson  v Humphrey [2009] EWHC 3576 (Ch) on discussions that don’t evidence a common intention to share ownership of the property.

     

     

    Detrimental reliance

     

    Lord Bridge went on to say that:

     

     

     

    “Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest … to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or proprietary estoppel.”

     

     

     

    If there is an express unwritten agreement, without more, this would be unenforceable (s53(1)(b) LPA 1925). According to Lord Diplock in Gissing v Gissing at 905, for the woman to establish her claim she must

     

     

     

    “do something to facilitate . . . [the] acquisition [of the home], by contributing to the purchase price or to the deposit or the mortgage instalments . . . or to make some other material sacrifice by way of  contribution to or economy in the general family expenditure pursuant to the bargain.”

     

     

     

    The nature of the woman’s contribution is fairly varied and is not confined to direct monetary contributions.

     

    For examples of the types of contributions that have been considered to amount to detrimental reliance, see Eves v Eves, Grant v Edwards, Levi v Levi, 12 March 2008, and Parris v Williams [2008] EWCA Civ 1147.

     

    Traditionally, the courts looked for something fairly substantial or out of the ordinary to count as detrimental reliance.  Thus in Lloyds Bank v Rosset, Lord Bridge doubted whether the wife’s conduct would have been sufficient reliance and  in Lalani v Crump Holdings Ltd [2007] EWHC 47 (Ch), Sir Andrew  Park   decided   (arguably  obiter)  that  the  claimant’s  actions  in furnishing the property  and paying its running expenses would not have amounted to detrimental reliance.  These actions were said to be referable to occupation but not  ownership  or purchase of the property.                              See also Thomson v Humphrey, suggesting that giving up work to look after the house and the family would not be enough to amount to detrimental reliance.

     

     

     

     

     

    162

     

    However, Parris  v  Williams  demonstrates  that  the  acts  of  detrimental reliance do not have to have been agreed or anticipated by the parties and confirms  that  whether  those  acts  are  sufficient  to  count  as  detrimental reliance will depend on the circumstances of the particular case.

     

     

     

    Inferred common intention constructive trusts

     

    Where there is no express agreement, the court cannot invent one on the basis of what a reasonable couple in their situation would have agreed at the time  of  acquisition,  if  contemplating the  breakdown  of  their  relationship (Pettitt, Gissing, and Rosset).

     

    However, the  court can  infer an agreement or  common intention if  the evidence will support it. The nature of the inferred intention was explained in Gissing by Lord Diplock at 906:

     

     

     

    “[T]he relevant intention of each party is the intention which was  reasonably understood by the other party to be manifested by that party’s words or conduct notwithstanding that he did not communicate to the other party. On the other hand, he is not bound by any inference which the other party draws as to his intention unless that inference is one which can reasonably be drawn from his words or conduct . . . [E]ffect is given to the inferences as to the intentions of parties to a transaction which a reasonable man would draw from  words or conduct and not to any subjective intention or absence of intention which was not made manifest at the time of the transaction  itself. It is for the court to determine what these inferences are.”

     

     

     

    Conduct that will give rise to an inferred common intention constructive trust

     

    According to Lord Bridge in Rosset:

     

     

     

    “direct contributions to the purchase price … whether initially or by payment of mortgage instalments, will readily justify the inference necessary to the creation of a constructive trust. But … it is at least extremely doubtful whether anything less will do.”

     

     

     

    As Lord Bridge made clear, the conduct of the parties serves two functions: first, as the basis from which to infer a common intention and, secondly, as the conduct relied on to give rise to a constructive trust.

     

    However, the mere fact of direct contributions will not automatically give rise to  an  inferred  common  intention  constructive  trust  if  there  is  another explanation for the payments. The payments must genuinely be referable to a shared  understanding that the paying party should have an equitable interest.  See, for example, Lightfoot v Lightfoot-Brown [2005] EWCA Civ

    201.

     

     

     

     

     

     

     

    163

     

    Conduct  that  may  not  give  rise  to  an  inferred  common  intention constructive trust

     

    In the absence of an express agreement, indirect contributions would not appear to avail the woman in her claim for a share in the proceeds of sale. A court is unlikely to infer an agreement to share from such conduct because it could be explained in  other ways; it is not necessarily ‘referable to the acquisition of the property’.

     

    Stack v Dowden may represent a wider approach to inferring a common intention.                   Lord Walker and Baroness Hale in particular both expressed concerns that Rosset had been too restrictive in considering the conduct from which a common intention could be inferred.  Baroness Hale reiterated this in Abbott v Abbott, and two recent Court of Appeal cases, James v Thomas (above) and Morris v Morris [2008] EWCA Civ 257, both appear to accept that the court can infer a common intention from the whole course of conduct between  the parties, not just from direct financial contributions (although on the facts the claimants’ actions were not found to be sufficient to give rise to a beneficial interest in either case).

     

    However, it is interesting to note that the recent cases have all shied away from   inferring  a  common  intention  from  indirect  contributions,  despite appearing to  acknowledge that it is possible to do so.                                                              See in particular Walsh  v  Singh,  where  the  judge  read  all  of  the  claimant’s  indirect contributions  as  being  referable  merely  to  a  long-standing  committed relationship and used Baroness Hale’s factors from Stack to infer that there had been no common intention to share ownership of the house.

     

    Improvements to the home

    In Pettitt v Pettitt [1970] AC 777 (decided before the Matrimonial Causes Act 1973), rather unusually, the home was in the sole name of the wife and the husband was claiming a share of the proceeds of sale on the breakdown of their marriage. The home had been bought with the wife’s money, but the husband claimed a beneficial interest for “laying out the garden with a lawn and patio,  putting  up a side wall with a gate, and [doing] various jobs of redecoration and the like in the house itself” (at 825).

     

    The House of Lords held there was no agreement that he should acquire a beneficial interest, so,

     

     

     

    “in  the  absence  of  agreement,  and  there  being  no  question  of  any estoppel,  one  spouse  who  does  work  or  expends  money  upon  the property of the other has no claim whatever  upon the property of the other.” (per Lord Upjohn at 818).

     

     

     

    See also Thomas v Fuller-Brown [1988] 1 FLR 237, where the Court of Appeal  held that a man who carried out substantial work on the property belonging to the woman with whom he was living (including designing and building a two-storey extension) had no interest in the house. The work was not referable to the acquisition of the property. The court appeared to infer that it was in return for rent-free accommodation.

     

     

     

     

     

    164

     

    However, note the obiter suggestions of the House of Lords in Stack v Dowden that substantial improvements which significantly add value to the property should give rise to an interest.

    The  House  of  Lords  found  unanimously  that  there  was  no  express agreement, Lord Bridge observing that:

     

     

     

    “… neither a common intention by spouses that a house is to be renovated as a ‘joint venture’ nor a common intention that the  house  is to be shared by parents and children as a family home throws any light on their intentions with respect to the beneficial ownership of the property”.

     

     

     

    Nor could an intention be inferred – the type of conduct involved in this case could  not,  by  itself,  found  a  claim  for  a  beneficial  interest.  The  court considered  the  monetary value of Mrs Rosset’s work “almost de minimis”. See also Walsh v Singh, where Judge Purle QC found that the claimant’s conduct in supervising and helping with the renovation was explicable by her wish to live in the property but  said nothing about their intentions as to ownership of the property.

     

    Contributing out of own income to other expenses of the household

    In Gissing v Gissing [1971] AC 886 (also decided before the Matrimonial Causes Act 1973), the home was in the husband’s sole name. He bought the house mainly by means of a mortgage for £2,150, a loan to him of £500 and his own money (£45). The loan and mortgage repayments were made by him from his  own money. He paid his wife house-keeping money. She used her own money to buy clothes for herself and their son. She also paid for furniture and equipment and for the lawn to be laid.

     

    He later left her telling her the house was hers. Following the divorce, she claimed  a beneficial interest in the home. The wife failed in her claim, as there was no common intention at the time of acquisition for her to have a beneficial interest, and she had made no contributions to the acquisition of the home.

     

     

    165

     

     

    However, in Burns v Burns [1984] 1 All ER 244, Fox LJ accepted obiter

    that:

     

     

     

    “If there is a substantial contribution by the woman to the family expenses, and the house is purchased on a mortgage, her contribution is, indirectly, referable to the acquisition of the house since, in one  way or another, it enables the family to pay the mortgage instalments. Thus, a payment could be said to be referable to the  acquisition of the house if, for example, the payer either (a) pays  part of the purchase price or (b) contributes regularly to the  mortgage instalments or (c) pays off part of the mortgage or (d)  makes a substantial financial contribution to the family expenses so  as to enable the mortgage instalments to be paid.”

     

    The Burns approach has been approved by the High Court obiter in Le Foe v Le  Foe [2001] 2 FLR 970, where the judge said that the fact that the husband paid the mortgage instalments while the wife paid for the day-to- day domestic  expenditure was just an arbitrary allocation of responsibility. He  referred  to  Lord   Bridge’s  comments  in  Rosset,  particularly  the proposition that “it is at least extremely doubtful whether anything less [than direct  contributions]  will”  give   rise   to  an  inferred  common  intention constructive  trust,  and  concluded  that  Lord  Bridge  was  not  making  a proposition in absolute terms; what he was  saying was that it will be only exceptionally that conduct other than direct  contributions to the purchase price will suffice – not that it will never suffice.

     

    Note also that responsibility for outgoings on the property was one of the factors  highlighted by Baroness Hale in Stack v Dowden as relevant to determining  the  parties’  common intention.                                               Whilst  her  comments were directed solely to determining the size of the parties shares in the context of a  home  where  legal  title  was  in  joint  names,  if  this  approach  can  be extended  to inferring an intention to share beneficial ownership in the first place (as Abbott v Abbott, James v Thomas and Morris v Morris appear to suggest), contributions to household expenses may in future be sufficient to give rise to an inferred common intention constructive trust.

     

    Raising the family

    It is indicative of a conservative approach that Lord Bridge said in Rosset at

    133 that  the  female  claimants’  conduct  in  Eves  v  Eves  and  Grant  v

    Edwards

     

     

     

     

     

     

     

     

    166

     

    “fell far short of such conduct as would by itself have supported the claim in the absence of an express representation by the male partner that she was to have such an interest.”

     

     

     

    In Burns v Burns (above), Fox LJ said,

     

     

     

    “the mere fact that parties live together and do the ordinary domestic tasks is . .

    . no indication at all that they thereby intended to alter the existing  property rights of either of them.”

     

     

     

    This approach has been followed in Thomson v Humphrey.  Warren J said that whilst domestic tasks such as looking after the house and family would be relevant to quantification if an interest under a constructive trust could be established, they were insufficient to infer an interest in the first place.

     

    Working in the family business

    Despite appearing to accept that a common intention to share beneficial ownership can be inferred from the whole course of conduct between the parties, the Court of Appeal in both James v Thomas and Morris v Morris held  that   working  in  the  family  business  without  remuneration  was insufficient conduct from which to infer the necessary intention, even where money generated by the  business was used to pay the mortgage on the home.  A similar approach was adopted in Walsh v Singh, where giving up work to pursue a new business at  the property as a joint venture was deemed to be explicable in the context of a  long-term relationship rather than indicative of any belief that the claimant had a beneficial interest in the property. This suggests that although in principle courts  are  prepared to take a more flexible approach to inferring a common intention in future, in practice it is still difficult to predict exactly what types of conduct  beyond direct contributions to the purchase price or mortgage will count.

     

     

     

     

     

     

     

     

    167

     

    12.3.2            Quantifying  the  beneficial  interests  when  legal title is in one name only

     

    If the claimant succeeds in establishing her right to a beneficial interest, the size of  her share will have to be determined.                          It appears that different principles may apply depending upon the type of trust claimed.

     

     

     

    Resulting trust

     

    In a traditional resulting trust, the size of the interest is normally determined in proportion to the contribution made.  See, for example, Bull v Bull and Cowcher v Cowcher above.

     

    Note that, strictly speaking, ‘contribution’ refers to the initial purchase price, so in Cowcher v Cowcher the shares were unaffected by the fact that Mrs Cowcher           paid     some                  later   mortgage        instalments.                           Later    mortgage repayments may now be taken into account – see the discussion of Tinsley v Milligan above.

     

    An initial resulting trust may, however, be displaced by an express common intention constructive trust: Drake v Whipp [1996] 1 FLR 826 (see below).

     

     

     

    Inferred common intention constructive trust

     

    The orthodox view was that the resulting trust approach would also apply to

    ‘constructive’ trusts based on inferred common intention. In Gissing v Gissing, Lord Diplock said:

     

     

    “the inference is that their common intention was that the contributing spouse should  acquire  a  share  in  the  beneficial  interest  in  the  land  in  the  same proportion as the sum contributed bore to the total purchase price”.

     

     

     

    However, more recently the courts have taken a more flexible approach to quantification of the shares under an inferred common intention constructive trust.

     

    In Midland Bank plc v Cooke [1995] 4 All ER 562, Waite LJ concluded that the court should

     

     

     

    “undertake  a  survey  of  the  whole  course  of  dealing  between  the  parties relevant to their ownership and occupation of the property and their sharing of its burdens and advantages.” This would not be  confined to acts of direct contribution but would “take into consideration all conduct which throws light on the question what shares were intended.”

     

     

     

     

     

     

     

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    This approach was approved by the House of Lords in Stack v Dowden, where the majority confirmed that courts should examine the parties’ shared intentions in light of their whole course of conduct.

     

    Whilst Stack v Dowden strictly only applies to cases where legal title is in joint names, the majority’s approach to quantification has subsequently been applied to an inferred common intention constructive trust where legal title was in one name only by the Privy Council in Abbott v Abbott and by the County Court in Webster v Webster [2008] EWHC 31 (Ch).  Application of the  Stack  v  Dowden  approach  to  single  names  cases  has  also  been approved obiter by the Court of Appeal in James v Thomas.

    Remember,  however,  that  where  legal  title  is  in  one  name  only,  the presumption of equal shares does not apply.  The presumption here would instead  be that the legal owner owns the entire equitable interest as well. Once  the  claimant  has  established  that  she  has  an  interest,  she  will therefore have to  rely on the ‘whole course of dealings’ to establish their shared intentions as to  the size of that interest.           Note that Webster v Webster suggests that, in this context, awards of equal shares will therefore be rare.

     

     

     

    Express common intention constructive trust

     

    If there is express agreement as to the intended size of the share, the court will  give  effect to this (irrespective of the parties’ contributions): Clough v Killey.

     

    If there is no express agreement as to the size of their respective shares, Lord Diplock in Gissing v Gissing said (at 908-909):

     

     

     

    “In such a case the court must first do its best to discover from the conduct of the  spouses  whether  any  inference  can  reasonably  be  drawn  as  to  the probable  common  understanding  about  the  amount  of  the  share  of  the contributing spouse on which each  must have acted in doing what each did, even though that understanding was never expressly stated by one spouse to the   other   or  even  consciously  formulated  in  words  by  either  of   them independently.”

     

     

     

    In Drake v Whipp, the Court of Appeal emphasised that where there was a constructive trust based on common intention and detrimental reliance, the court could adopt a ‘broad brush’ approach and look at all the circumstances to determine the size of shares

     

     

    The House of Lords in Stack v Dowden endorsed the approach used in Drake v Whipp and Midland Bank v Cooke of looking at the whole course of dealings  between the parties to establish what shares they intended. Although Stack v Dowden strictly only applies to cases where legal title is in joint names, it has been applied by the Court of Appeal (in a slightly unusual case) to an express common  intention constructive trust where legal title was in one name only in Holman v Howes [2007] EWCA Civ 877 and by the High Court in Hapeshi v Allnatt [2010] EWHC 392 (Ch).

     

     

     

    12.4  A new type of trust?

     

     

    It is not entirely clear where the law of resulting and constructive trusts is heading. It is arguable, particularly in light of the majority opinion in Stack v Dowden and the cases that follow it, that a new set of principles peculiar to the  shared home is being developed, while the principles of resulting and constructive  trusts outside this context remain as previously stated. While Lord Neuberger disputed this in his dissenting opinion in Stack v Dowden, it certainly seems that courts in domestic cases have been far more willing to bend the rules and take a much wider range of factors into account than in commercial cases.

     

    It is also noticeable that currently the only case to have been decided since Stack v Dowden that has not applied the Stack approach to quantification was a case involving the purchase of a house as an investment rather than a family home (Laskar v Laskar – see above).  Perhaps unsurprisingly, the sole judgment in that case was delivered by Lord Neuberger.

    12.5  Constructive trusts and proprietary estoppel

    To compound matters, Lord Bridge in Rosset referred on several occasions to the same facts, namely express agreement and detrimental reliance (his first  category),  giving  rise  to  either  a  constructive  trust  or  proprietary estoppel (as to which, see Land Law texts).

    Similar suggestions were made by Chadwick LJ in Oxley v Hiscock [2004] EWCA Civ 546, but it is unclear whether the courts are moving towards a fusion of these two areas of law or simply giving themselves a wider range of remedies.

    However, there are a number of differences between the two concepts.

    A constructive trust of the home is based on the common intention of the parties  and typically arises at the time the property is acquired, though it may arise later.

     

    By contrast, proprietary estoppel is based on the expectation of one party encouraged by the other and often involves assurances made over a long period of time.  The House of Lords in Thorner v Major has confirmed that the assurances do not have to be clear and unequivocal (they merely have to be  “clear  enough” in the sense that, assessed objectively, they were intended to be taken seriously and to be relied on), but that they must be clear on the interest that the claimant is to have (following the earlier House of Lords decision  in  Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55 on this point).   See also MacDonald v Frost [2009] EWHC 2276 (Ch).

     

    The courts also seem to take a wider view of detrimental reliance in the context of proprietary estoppel, Lord Hoffmann stating in Thorner that it is not  necessary  for  the  defendant to  have  known  about  or  foreseen  the particular acts of reliance and Lords Scott and Neuberger confirming that all that is required is that  the claimant’s reliance was reasonable in all the circumstances.

     

    The remedies under proprietary estoppel also differ: they may range from an order  to  the defendant to transfer the legal estate to the claimant (as in Pascoe v  Turner [1979] 1 WLR 431) to no more than granting rights of occupation (as in Greasley v Cooke [1980] 1 WLR 1306). In other words, the remedy may confer  greater or lesser rights than under a constructive trust. Presumably, the remedy can be tailored to take account of third party rights, such as those of a mortgagee or other creditors.

     

    However, it is interesting to note that in Cobbe and Thorner, the House of Lords made a clear distinction between proprietary estoppel in commercial cases (which, following Cobbe, would seem increasingly hard to argue) and proprietary estoppel in the domestic setting (where, according to Thorner, courts  might  be  more   willing  to  adapt  the  strict  requirements  to  the circumstances of the case).   As  this mirrors the pattern developing within

     

     

     

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    constructive trusts, it may provide the basis for further assimilation of the concepts in future.

     

     

     

    12.6  Reform

     

     

    The Law Commission’s long-awaited Discussion Paper Sharing Homes was finally published in July 2002.

     

    As is evident from the above discussion, the current law that determines whether  a person has rights in a shared home is rather complicated and somewhat difficult to apply.  The Law Commission had, therefore, attempted to devise a  scheme that would determine when a non-legal owner of the home would acquire an interest in it.  It intended the scheme to be based solely on the contributions  of the parties and to be independent of the parties’ intentions. Such contributions would include both direct contributions to  the  purchase  price  as  well  as  indirect  contributions  in  the  form  of household expenditure and even non-financial contributions such as looking after the home and the family.   The  advantages of such a scheme would obviously be certainty and predictability, as it would make it possible to value contributions objectively.

     

    However, the Law Commission concluded that it was not possible to devise a  scheme  that  would  operate  fairly  and  evenly  across  all  the  diverse circumstances that can be encountered. Therefore, while suggesting that all those  living  together  should  be  positively  encouraged to  make  express written  arrangements setting out their rights in the home, it decided that it would not actually make any proposals for legislation on the matter.

     

    The Law Commission stated that more useful reforms could be obtained by the courts taking a broader view of the kinds of contributions from which one might infer  a common intention. Contrast the strict interpretation in Lord Bridge’s judgment  in Rosset, in respect of the type of conduct that would give  rise  to  an  inferred  common intention constructive  trust.                                                                                                             The  Law Commission proposed that, in situations such as those in the fourth group mentioned in Burns v Burns, where one person pays the household bills to enable the other home owner to pay the mortgage instalments, the courts should be permitted to infer that the person was intended to obtain a share in the home.  They referred to Le Foe v Le Foe in the Discussion Paper as a good example of the wider approach recommended.

     

     

     

     

     

     

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    The Law Commission also suggested that the courts should adopt a broader outlook to quantifying the size of the non-legal owner’s share in the home. This arguably lends some support to the more expansive approach taken in Midland Bank v Cooke and Stack v Dowden.

     

    The recommendations fell far short of the wholescale reform anticipated but in   early   2005,  the  Law  Commission  announced  that  it  would  review cohabitation again as part of the Ninth Programme of Law Reform.                                         The review focused on the financial hardship suffered by cohabitants on the termination of the relationship and once again considered the possibility of introducing legislation in this area.  This time, the Law Commission favoured legislative intervention, although the exact form that any such legislation might take is unclear.

    The Government announced on 6 March 2008 that it was reserving any decision  on  the  matter  for  the  foreseeable  future,  but  the  matter  was subsequently been brought before Parliament again in the form of a Private Members’ Bill introduced by Lord Lester of Herne Hill. The Bill, which largely replicates the Law Commission’s proposals, received its second reading on

    13 March 2009, eliciting an interesting debate in the House of Lords on the benefits of legislation.

     

     

     

     

     

     

     

    Materials for question 3

     

     

     

     

     

     

     

     

     

     

    Secret Trusts

     

     

     

     

     

     

    Learning Outcomes

     

     

    By the end of this chapter you should be able to:

    1.  understand the justification for upholding the validity of secret trusts;

    2.  identify the different rules that apply to fully and half secret trusts;

    3.  apply these rules to factual scenarios.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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    6.1                  Introduction

     

     

    1.  Normal requirements for testamentary trusts

    To create a valid gift/trust to take effect on death, s 9 Wills Act 1837 must be complied with.

     

     

     

    2.  Reasons for using secret trusts

    A will is a public document, but a person may wish to set up a trust on death without revealing the details in his/her will, eg:

    a)  he may not wish certain gifts (such as to a lover or illegitimate child)

    to be known;

    b)  he may be undecided as to the details of who is to benefit;

    c)  under old law, land could not be left by will for charitable purposes.

     

     

    3.  Secret trusts – mechanism

    One of two methods might be used to set up a secret trust:

    a)  outright gift in the will to the intended trustee – fully secret trust,

    b) gift in the will to the intended trustee stated to be ‘on trust’ – half secret trust.

    In either case, the details of the trust do not appear in the will but the  trustee  is  separately  informed  by  the  testator,  during  his lifetime, of the trusts on which the property is to be held.

     

     

    4.  Validity

    Any gift/trust which is to take effect on death must normally comply with the formalities of s 9 (unless it is a valid donatio mortis causa).

    A  document  which  does  not  comply  with  the  Wills  Act  can  be incorporated by reference into a will, provided it is in existence when the will is executed and is referred to in the will as being then in existence. However, if this is done, the document is treated as part of the will and becomes public. This would defeat the object, namely secrecy, so, can there be a valid trust  based on informal instructions to the intended secret trustee?

    The courts have recognised such trusts as valid provided certain criteria are fulfilled but there is some disagreement about the rationale behind this and the exact status of the trusts.

    More difficulties seem to  have arisen in  connection  with half secret trusts, recognition of which was not firmly established until considerably later than fully secret trusts. As a result, the rules relating to fully and half secret trusts have evolved with certain inconsistencies.

     

     

     

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    5.  Standard of proof

    The onus is on the person claiming that a trust exists. The standard of proof  for establishing the trust is generally the normal civil standard, namely proof  on a balance of probabilities (Re Snowden [1979] Ch

    528).

     

     

     

     

     

    6.2      Requirements for a valid secret trust

     

     

    According to Kasperbauer v Griffith [2000] WTLR 333 the requirements for the trust to be enforced are:

    1.  an intention by the testator to create a trust;

    2.  communication of the trust to the intended trustee; and

    3.  acceptance of the trust by the trustee.

    The testator then relies on that acceptance by making a will, leaving a will unrevoked or not making a will at all.

     

     

     

     

     

    6.3      The three certainties

     

     

    Secret trusts, like any other form of express trust, must satisfy the three certainties  of  intention,  subject  matter  and  objects  (see  Chapter  3).  In particular, it must be clear that the person setting up the trust intended to impose a binding legal obligation on the trustee, not merely a moral or family obligation.

     

    In Kasperbauer v Griffith the testator’s statement that his wife “knows what she  has  to do” with the house was held to be too vague to create an enforceable legal obligation on the wife to hold the house on a secret trust. Similarly, in  Margulies v Margulies (1999-2000) 2 ITELR 641, a father’s ambiguous  statements  about  the  claimant’s  older  brother  “knowing  his wishes” and “giving  what’s appropriate” were held not to create a binding legal obligation.                     A further  argument that the father left these statements deliberately vague for tax reasons was also rejected by the court.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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    6.4                  Fully secret trusts

     

     

    A fully secret trust is one where there is no indication on the face of the will (if there is one) that a trust exists. There is apparently an absolute gift to the recipient. Unless a valid secret trust is established, the person inheriting will take the property beneficially.

     

    If there is no communication to the fully secret trustee or acceptance by the fully  secret trustee, then the legatee’s conscience is clear and there is no question of using the statute as an instrument of fraud (see below), so he may take the legacy absolutely.

     

     

     

    6.4.1                              Communication

     

    1.  Timing of communication

    With a fully secret trust, communication must take place before death, whether  before or after the signing of the will (if any): Wallgrave v Tebbs (1855) 2 K & J 313. Instructions to hold on charitable trusts were not  communicated to legatees who took absolutely on face of will, but were found amongst the testator’s papers after his death.

    Held: no valid trust; the legatees had not been informed of the testator’s intentions during his lifetime, so they could take free of the trust.

     

     

    2.  What must be communicated

    a)  Existence of the trust

    If a trust is to be enforced against an apparent absolute legatee, then there must be communication of the fact of the trust (ie its existence) Wallgrave v Tebbs (above).

    If the fact of the trust is communicated inter vivos, the legatee cannot take beneficially as his conscience is bound.

    b)  Terms of the trust

    If the trust is to be enforced, its terms as well as its existence must be communicated inter vivos. If the trust is communicated but not its terms, the property is held on resulting trust.

    In Re Boyes (1884) 26 Ch D 531, property was left to the testator’s solicitor, who had agreed to hold the property on the terms he would receive. The testator did not, as promised, give instructions to the solicitor on how the property was to be held. Details of the intended trust   were  found  after  the  testator’s  death  in  two  unattested documents.

    The Court of Appeal held that there was a resulting trust to the testator’s estate as the trust had not been properly communicated; per Kay J: “The essence of all these decisions is that the devisee or legatee accepts a particular trust which thereupon becomes binding upon him, and  which it would be a fraud in him not to carry into effect”.

     

     

     

     

     

     

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    c)  The property subject to the trust

    The deceased  must  have  communicated  details  of  the  property subject  to the trust: Re Colin Cooper [1939] Ch 580. The testator left £5,000 to 2 people and communicated the terms of the trust to them.  By  a  later codicil, he increased the sum to  £10,000. The addition was not communicated to the intended trustees.

    Held: the first £5,000 was subject to the trusts; the other £5,000 was held  on resulting trust.   This was a half secret trust case, but the principle applies equally to fully secret trusts.

     

     

    3.  Method of communication

    Communication can generally be oral or in writing (but see below where land is involved).

    It seems there will be sufficient communication if the terms are given to the intended trustee, during the testator’s lifetime, enclosed in a sealed envelope, to be opened after the testator has died. It was considered in Re Keen [1937] Ch 236 that this would suffice, provided the trustee is aware that the envelope contains the terms of the trust and he accepts it on that basis; per Lord Wright  MR, “a ship which sails under sealed orders,  is  sailing  under  orders   though  the  exact  terms  are  not ascertained by the captain until later”.

     

     

    4.  Communication not made to all trustees

    If the testator communicates the trust to one of several trustees, but not to all of them, are they all bound by the trust?

    a)  general rule: only those to whom communication is made are bound by the trust (since only their consciences are affected);

    b)  exception: if the gift is to joint tenants, as opposed to tenants in common,  all  are  bound  if  communication  took  place  before  the execution of the will (but not if it took place after).

    In Re Stead [1900] 1 Ch 237, Farwell J reviewed the earlier authorities and found this to be the state of the law, although he (like many others) felt it difficult to justify.

    So, if the legatees are to take as tenants in common, those to whom communication was made are bound by the trust, but those to whom no communication was made may take the property beneficially.

    If the legatees are to take as joint tenants, where communication was made before the will was executed, all the joint tenants are bound. (See Co-ownership in Land Law on how to ascertain whether there is a joint tenancy or tenancy  in  common.) Where communication occurred after execution, only those to whom communication was made are bound by the trust.

    Note that Re Stead concerned a fully secret trust of personal property. It is unclear whether the principle can or should be applied to fully secret trusts of land or to half secret trusts.

     

     

     

     

     

     

     

     

     

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    6.4.2                              Acceptance

     

    Acceptance of the trust is necessary in order to bind the secret trustee. It can be express or inferred and silence may count as acquiescence: Moss v Cooper (1861) 1 J & H 352 per Wood V-C “Acquiescence either by words of consent or by  silence”.  What is vital is that the testator must reasonably believe that the trust has been accepted.

     

     

     

    6.4.3                              Reliance on Acceptance

     

    In reliance on the acceptance or acquiescence, the gift is made, or is left unrevoked (Moss v Cooper) or the deceased refrained from making a will (Stickland v Aldridge (1804) 9 Ves 516, where there was a failure to make a will, on the strength of an undertaking of the deceased’s next of kin).

     

     

     

    6.4.4                              Carrying out the secret trust:

     

    In most cases, the obligation is to make some inter vivos transfer of property but in  Ottaway v Norman [1972] Ch 698, the doctrine was held to apply equally to an obligation to make a will in favour of the secret beneficiary. The testator  left  his  freehold  bungalow  to  his  housekeeper.  It  was  agreed between  them  that  she  would  devise  the  bungalow  by  her  will  to  the testator’s son, which she failed to do.

     

    The court held that the son was entitled to the bungalow on the basis that the obligation was imposed and accepted and the means of carrying out the obligation was immaterial.

     

    Brightman J said

     

     

     

    “I  am informed that there is no recent reported case where the  obligation imposed on the primary donee is an obligation to make a will in favour of the secondary donee as distinct from some inter  vivos transfer. But it does not seem to me that that can really be a distinction which can validly be drawn on behalf of the defendant in  the present case. The basis of the doctrine of a secret trust is the obligation imposed on the conscience of the primary donee and it does not seem to me that there is any materiality in the machinery by which the donor intends that obligation shall be carried out . . .”

     

     

     

    6.5                  Half-secret trusts

     

     

    This type of trust arises where it is clear from the face of the will that the property is left on trust but the will does not contain the terms of the trust, eg the will provides:

     

    “£10,000 to X on trust” or “£10,000 to Y on the trusts I have communicated to him”.

     

     

     

     

     

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    If there is a clear intention to create a trust but the half secret trust is not valid, there will be a resulting trust.

     

    The original justification for enforcing fully secret trusts was prevention of fraud:  it  would  be  fraudulent if  the  secret trustee kept  the  property for himself. With half-secret trusts, however, the requirements of the Wills Act cannot be used as  an instrument to defraud the beneficiary, as the half- secret trustee is a trustee on the face of the will and cannot take beneficially. The courts were, therefore, less  ready to accept the validity of half secret trusts (see eg Moss v Cooper, where it was said that a mention in the will prevented the operation of the doctrine of secret trusts).

     

    Hence the courts had to find some other justification for enforcing half secret trusts.  Their validity was not firmly established until the decision of the House of Lords in Blackwell v Blackwell [1929] AC 318. £12,000 was left by codicil to five people to be applied “for the purposes indicated by me to them”. The terms of the  trust were communicated before the codicil was executed. The House of Lords held that the trust was enforceable.

     

    It seems their Lordships took a wider view of fraud, namely, failing to give effect to the testator’s wishes, which the secret trustee has promised to carry out. This  would apply equally to full and half secret trusts. The House of Lords also took the view that the trust was outside (dehors) the will and thus outside the ambit of the Wills Act.

     

    Viscount Sumner said

     

     

     

    “It is communication of the purpose to the legatee, coupled with acquiescence or promise on his part, that removes the matter from the provision of the Wills Act and brings it within the law of trusts.”

     

     

     

    He also said that equity

     

     

     

    “makes him do what the will in itself has nothing to do with”.

     

     

     

    However, he also made reference, obiter, to limits, namely that a testator should  not be able to give the go-by to the requirements of the Wills Act because he did not choose to comply with them:

     

     

     

    “A testator cannot reserve to himself a power of making future  unwitnessed dispositions by merely naming a trustee and leaving the purposes of the trust to be supplied afterwards”.

     

     

     

    These obiter comments have been picked up in subsequent cases and used to support the view that, in the case of half secret trusts, communication of the trust and its terms must take place before or contemporaneously with the execution of the  will (contrast fully secret trusts, which are valid provided

     

     

     

     

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    communication takes place before death, whether it occurs before or after

    the will).

     

    This difference in the communication rules between fully and half secret trusts is hard to justify and has been criticised. It is suggested that the courts may have  been (inappropriately) influenced by the rules for incorporating documents into the will by reference, simply because the trust is mentioned on the face of the will.

     

    Note that the details of what must be communicated are the same for a half secret trust as for a fully secret trust (see above).

     

     

     

    6.5.1                              Consistency with the will is essential

     

    In Re Keen [1937] Ch 236, property was left to two people to dispose of “as may be notified by me to them” or either of them “during my lifetime”.

     

    A sealed envelope containing the terms of the trust was given to one of the trustees before the will was executed.

     

    The Court of Appeal held that the trust failed because:

    a)  the will referred to a future communication, which was inconsistent with a communication already made, so the trust would fail for inconsistency with the will;

    b)  there  was  a  reference  to  future  communication,  which  was  not permissible.

     

     

     

    6.5.2              Communication must             take     place before  or contemporaneously with the execution of the will

     

    In Re Keen (above), the court referred to obiter statements in the speeches in  Blackwell v Blackwell and went on to hold that, in half secret trusts, communication cannot take place after the will. Lord Wright MR said that this “would   involve  a  power  to  change  a  testamentary  disposition  by  an unexecuted codicil and would violate s 9 of the Wills Act”.

     

    The  requirement  that  communication  should  occur  no  later  than  the execution  of  the  will  has  been much criticised but  Re  Keen has  been followed.

     

    In Re Bateman’s Will Trusts [1970] 1 WLR 1463, the testator’s will stated that income was to be paid “to such persons and in such proportions as shall be stated by me in a sealed letter . . . addressed to my trustees.” The court held that the trust was invalid. Pennycuick V-C said that the words:

     

     

     

    “import that the testator may, in the future, after the date of the will, give a sealed envelope to his trustees. It is impossible to confine the words to a sealed letter already so given. If that is the true construction of the wording, it is not in dispute that the direction is invalid . . . as an attempt to dispose of the estate by a non-testamentary instrument.”

     

     

     

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    It would seem from this that, whenever the trust is communicated, it will fail if the will allows for future communication.

     

     

     

     

     

    6.6      Secret trustee as witness to will

     

     

    s 15 Wills Act 1837 provides that a witness to a will cannot benefit under it. If a half-secret trustee were to witness the will, that should not defeat the trust as the will shows that he is a trustee and s 15 provides that any benefit to a witness is void.

     

    It is less clear what the position would be if a fully secret trustee were to witness the will. As it appears as an outright gift, it could be argued that he loses the gift and no trust property will come to him. It is submitted that, as he does not take the legacy beneficially, s 15 Wills Act should not defeat the trust.

     

     

     

     

     

    6.7      Death of, or disclaimer by, trustee

     

     

    It has not been settled whether a secret trustee may disclaim the legacy and thereby  defeat the trust. It was said obiter in the Court of Appeal in Re Maddock  [1902]  2 Ch 220 (which concerned a fully secret trust) that the trust will fail if the secret trustee predeceases the testator or disclaims the gift. (In the case of an ordinary gift by will to a person who predeceases the testator, the gift normally lapses ie fails.)

     

    However, in Blackwell v Blackwell (which concerned a half secret trust), it was said, also obiter, in the House of Lords that the trustee of a fully secret trust will not be allowed to defeat the testator’s purpose by renouncing the legacy. The latter view seems right in principle.

     

    It is also arguable that, since the trustee of a half secret trust is a trustee on the face of the will, if he predeceased the testator, the principle that equity will not permit a trust to fail for want of a trustee might be applied.

     

     

     

     

     

    6.8      Justification for enforcing secret trusts

     

     

    If the courts are to recognise trusts that do not comply with the Wills Act, they must find some justification for ignoring the requirements of that statute. The courts have come up with two main theories, although neither is entirely satisfactory.

    1.  the ‘fraud theory’

    This is based on the saying that “equity will not permit a statute to be used as an instrument for fraud”.

     

     

     

    71

     

    It is clearly possible for an intended trustee fraudulently to keep the property, where there is nothing in the will to indicate that he holds on trust. Equity, however, will not permit him to use the requirements of the Wills Act to keep the property, but will ensure that he holds it on trust: McCormick v Grogan (1869) LR 4 HL 82.

    Prevention of fraud was the original justification for enforcing secret trusts.  However, this theory is less convincing in justifying half secret trusts since the half secret trustee appears as a trustee on the face of the will and, thus, cannot take beneficially.

     

     

    More recently, the courts have found justification in:

     

    2.  the ‘dehors the will theory’

    Blackwell  v  Blackwell  [1929]  AC  318  suggests  that  secret  trusts operate outside (dehors) the will and are therefore not subject to the Wills Act. It would appear that communication and acceptance create the trust inter vivos. The will does not create the trust, it is merely the device for constituting it by transferring the property to the trustees. The trust is thus ‘dehors’ or outside the will.

    This theory, however, leaves problems unresolved. If it is correct, it would  seem to apply to both fully and half secret trusts, which makes something of a nonsense of the differing requirements in respect of the timing of communication (see above)

    The following cases lend support to the theory:

    Re Gardner (No  2)  [1923] 2  Ch  230,  where the  secret beneficiary predeceased the testator. The normal rule is that a gift under a will lapses (fails) if the beneficiary predeceases.

    The court held that the beneficiary’s interest arose as soon as the trusts were  communicated  and  accepted,  as  the  interest  was  created  by agreement, not by the will. Accordingly, the beneficiary’s share did not lapse.

    This decision is regarded as dubious because, until the testator’s death, the trust is incompletely constituted.

    In Re  Young [1951] Ch  344, a  secret trust benefited the  testator’s chauffeur, who had witnessed the will. S 15 Wills Act provides that a witness to a will cannot benefit under that will.

     

     

    The  court  held  that  the  chauffeur  was  entitled  under  an  oral  trust declared inter vivos. Danckwerts J said:

     

     

     

    “a beneficiary under a secret trust does not take under the will, and …

    he is not, therefore, affected by s15 of the Wills Act 1837”.

     

     

     

    He was, therefore, entitled to benefit.

     

     

     

     

     

     

     

     

     

    72

     

    6.9      Express or constructive?

     

     

    It is  unclear  whether  secret  trusts  are  express  or  constructive.  This  is important because, if they are express, a secret trust relating to land would seemingly  require  evidence  in  writing  to  comply  with  s53(1)(b)  Law  of Property  Act  1925.  If  they  are  constructive,  then  s53(2)  removes  the necessity for formality.

     

    Ottaway v Norman (above) concerned a fully secret trust of a bungalow, which the court enforced although it was oral, but the issue of s53(1)(b) was not pleaded and was not considered by the court.

     

    Re Baillie (1886) 2 TLR 660 suggested that a half secret trust of land was not  enforceable without written evidence (although this case was decided before the validity of half secret trusts was firmly established in Blackwell v Blackwell).

     

    For a fully secret trust, if prevention of fraud is the basis for enforcement, the trust   is,   arguably,   constructive.  There   is   some   support   for   this   in Kasperbauer v Griffith [2000] WTLR 333, where the Court of Appeal took the view that a  constructive trust would be imposed to compel a secret trustee to hold trust property as had been agreed with the testator. However, as no trust was found in that case, this is only obiter dicta.

     

    It is more difficult to think of half secret trusts as constructive, since they are referred to in the will and so would seem to be express.

     

    It has been argued by Paul Todd that secret and half secret trusts depend on a principle of equity which, if not defeated by s 9 Wills Act 1837, will not be  defeated  by  s  53 Law  of  Property Act  1925 or  any other provision intended to prevent fraud, irrespective of whether the trusts are express or constructive.

     

     

     

     

     

    6.10 Secret Trusts in a Modern Context

     

     

     

    It may seem from the case law that secret trusts belong to a bygone age, but they do have a modern relevance.  For example, in Davies v HMRC [2009] UKFTT 138 (TC), on the death of Mrs Goodman, her estate was assessed by HMRC as chargeable to Inheritance Tax.  Her daughters argued that part of the estate was not chargeable as it had been given to Mrs Goodman on their father’s death on  fully secret trust, and thus did not form part of her estate.   The judge  acknowledged that in principle a secret trust could be imposed in such  circumstances, but found that in this particular case, no duties of trusteeship had been imposed upon Mrs Goodman. She may have wanted to benefit her  daughters, but this did not arise from any legally enforceable secret trust arrangement.                                         For a further example of a modern use of the secret trust, see Gold v Hill [1999] 1 FLR 54 in your Casebook.

     

     

     

    Materials for question 4

    ‘The Three Certainties’

     

    Learning Outcomes

    By the end of this chapter you should be able to:

    1.   state the three essential elements of express private trusts;

    2.   identify the different certainty requirements for fixed or discretionary trusts;

    3.   apply the tests to problem questions.

     


    3.1     Introduction

    A trust must be sufficiently certain to be valid and so enforceable.

     

    According to the cases, eg Knight v Knight (1840) 3 Beav 172, three certainties are required, namely certainty of:

    1.   words or intention (to create a trust);

    2.   subject matter (the property subject to the trust);

    3.   objects (beneficiaries).

     

    Provided these are present, the court can enforce the trust if necessary, where the trustees fail to do so.

     

    Failure to comply with the certainty requirements can render the disposition void – the exact consequences depend on the circumstances.

     

    These ‘certainties’ are usually discussed separately for ease of exposition but in practice are often interrelated. The court construes the document as a whole.

    3.2     Certainty of words or intention

    Introduction

    The question is whether the settlor has shown a clear intention to create a trust.  A court will construe the words used to find the settlor’s intention.

     

    Technical words are not required; ‘equity looks to the intent rather than the form’.  The word ‘trust’ need not necessarily be used for a trust to be created.

     

    In Re Kayford [1975] 1 All ER 604, Megarry J said (at page 607 A):

    “. . . it is well settled that a trust can be created without using the words ‘trust’ or ‘confidence’ or the like: the question is whether in substance a sufficient intention to create a trust has been manifested.”

    The use of the word ‘trust’ suggests a trust but is not conclusive.

    Precatory words and how certain is certain?

    1.   A distinction is drawn between:

    IMPERATIVE words, showing an intention to create a legally binding obligation, which will create a trust; and

    PRECATORY words, merely expressing a hope or wish, rather than imposing an obligation, which will not generally create a trust.

    2.   Whether words impose an obligation (trust) or merely express a wish (no trust) is a question of construction in each case.

    3.   The attitude to interpreting precatory words underwent a change; older cases leant towards finding a trust, whereas more modern cases lean against finding a trust when precatory words are used.

    4.   The turning point is said to be the case of Lambe v Eames (1871) 6 Ch App 597, where property had been left by the testator to his widow “to be at her disposal in any way she may think best, for the benefit of herself and her family”.

    The widow gave part of the assets by will to someone who was not a member of the family.

    The court held that the widow was absolutely entitled to the property and could make a valid gift of it to anyone.

    Referring to the earlier case law (from which the Court of Appeal departed), James LJ said

    “. . . in hearing case after case cited, I could not help feeling that the officious kindness of the Court of Chancery in interposing trusts where in many cases the father of the family never meant to create trusts, must have been a very cruel kindness indeed.”

    5.   The importance of construction of the particular words and circumstances is shown by comparing the cases of Re Adams and the Kensington Vestry (1884) 27 Ch D 394 and Comiskey v Bowring-Hanbury [1905] AC 84. These cases show that phrases such as “in full confidence” may or may not impose a trust.  The crucial factor is whether the context of the will as a whole indicates that this was the testator’s intention.

    You should compare the wording in Re Adams with the wording in Comiskey (both extracted in your Casebook) and decide why the words in Re Adams did not create an imperative obligation whereas the words in Comiskey did.

    6.   It can be seen from the above cases that, where the words are held not to impose a trust on the donee, s/he takes absolutely.

    Old words from old cases

    1.   The words in each document are interpreted in their context, rather than according to previous cases – so the same words may not have the same effect. In Re Hamilton [1895] 2 Ch 370, Lindley LJ said:

    “You must take the will which you have to construe and see what it means, and if you come to the conclusion that no trust was intended, you say so, although previous judges have said the contrary on some wills more or less similar to the one you have to construe.”

    In that case, it was held that no trust had been created where legacies were left to two nieces with the words “I wish them to bequeath the same equally between the families of O and P in such mode as they shall consider right”.

    2.   There may be a problem where words are used which had been held to create a trust in decisions before the change in attitude. Identical words from an older case may be interpreted in the same way if the whole gift is identically worded, because they may have been used as a precedent.

          Re Steele’s Will Trust [1948] Ch 603 suggests that, in such a situation, the earlier decision should be followed unless it is clearly wrong. (The court followed the interpretation given to words in Shelley v Shelley (1868) LR 6 Eq. The will had been prepared with professional help and the case of Shelley had then stood for 80 years.)

    Evidence of intention

    Where there is no ‘document’ creating a trust, the court must look at the words and/or conduct of the parties to see if there was an intention to create a trust, as in the following cases:

    1. In Paul v Constance [1977] 1 WLR 527 (in your Casebook) the County Court judge found an intention to create a trust for Mr Constance and Mrs Paul and ordered half the money to be paid to Mrs Paul. The Court of Appeal upheld this, Bridge LJ saying that the question was whether in the circumstances,

    “Mr Constance had done something which was equivalent to declaring himself a trustee of the moneys in the account for himself and Mrs Paul in equal shares”.

    Scarman LJ said that this was a borderline case because one could not pinpoint a specific moment of declaration but in all the circumstances the discussions on numerous occasions between Mr Constance and Mrs Paul constituted an express declaration of trust.

    The problem that arises from this is: how does one know if there is a trust if there is no clear point of declaration? Where are the clear words giving an unequivocal demonstration of the settlor’s intentions?

    One further technical issue in Paul v Constance is why she was not a joint tenant and so entitled to the whole under the right of survivorship. Mr Constance frequently said to Mrs Paul from the time he received the compensation until his death that the money was as much hers as his. This would seem to imply a joint tenancy. (Joint tenancies will be dealt with in detail in Land Law.)

    2.   Re Vandervell’s Trusts (No 2) [1974] Ch 269

    The court found an intention to declare a trust of shares from various acts of the trustees which were done with the full assent of the settlor. (See Chapter 4.)

    3.   Re Kayford [1975] 1 All ER 604 (in your Casebook)

    It was held there was a valid trust so the customers of the mail order company in liquidation received their money back. A sufficient intention to create a trust had been manifested.

    Megarry J found that a trust of the money had been intended. Writing, though desirable, was not essential (and see quote at 3.2 above).

    4. See Shah v Shah [2010] EWCA Civ 1408 (also discussed in Chapter 5), where the Court of Appeal construed the wording of a letter as showing an intention to declare a trust.

    3.3     Certainty of subject matter

    Need for certainty of subject matter

    It must be certain what property is subject to the trust for there to be a valid trust. If it is not clear what property is subject to the trust then how is a person to know what property he is to control as trustee in the interests of the beneficiary?

     

    Certainty of subject matter comprises two separate, though related, aspects, namely certainty of:

    1.   property – it must be certain what property is subject to the trusts;

    2.   beneficial entitlements – it must be certain what part or share of the property each beneficiary is entitled to.

    Case law

    Over the years much case law has accumulated on this topic. Each case depends on the precise words in question and its own facts. The following examples from the case law illustrate the importance of construing the words used in their particular context.

    1.   Sprange v Barnard (1789) 2 Bro CC 585 (in your Casebook)

    A testatrix provided in her will:  “… for my husband Thomas Sprange, to bewill him the sum of £300 … for his sole use; and at his death, the remaining part of what is left, that he does not want for his own want and use,  to be divided between…”  her brothers and sisters.

    The court granted a declaration that Thomas Sprange was entitled absolutely. There was no certainty as to property. It was not certain that any property would be left at the widower’s death, let alone what it would be. One could not say what property the trust was to “bite” on, so the subject matter was uncertain; there was no trust, so he took absolutely.

    Note that it was not sufficient to argue that on the widower’s death the remaining part of the money that was left would be certain. A trust creates rights and duties at the moment of its creation, and must be certain at the moment of its creation, so at the date the testatrix’s will took effect it needed to be certain how much was to be divided by her husband after his death. That was not certain at that stage. (Contrast this with a gift, which only needs to be certain at the moment legal title is transferred.)

    (See also In the Estate of Last [1958] P 137, where the offending words tacked onto a gift were “anything that is left”).

    2.   Palmer v Simmonds (1854) 2 Drew 221 (in your Casebook)

    The testatrix gave her residuary estate to Thomas Harrison “for his own use and benefit, as I have full confidence in him, that if I die without lawful issue he will  . . . leave the bulk of my said residuary estate” to specified persons.

    The use of the words “full confidence” at the time would have been sufficient to create a trust.

    The court held the phrase “the bulk of my estate” was not sufficiently certain for a trust, so Thomas Harrison took the property absolutely.

    3.   A trust of an unidentified section of chattels (tangible property) will fail, whereas a trust of an unidentified section of intangible property, such as shares, is valid.

          Re London Wine Co (Shippers) Ltd [1986] PCC 121

    Buyers of wine stored in various warehouses could not establish a trust of particular bottles in their favour as the bottles had not been segregated or identified in any way. So when the wine supplier went into liquidation, the customers could not claim priority over other creditors by saying that particular bottles of wine were held on trust for them.

    Mac-Jordan Construction Ltd v Brookmount Erostin Ltd [1992] BCLC 350 (CA).

    A building contract provided that part of the contract price would be retained and held by the employer as trustee for the builder. The employer became insolvent. The builder claimed the retention money in priority to other creditors.

    It was held that there was no trust because no retention fund had been set up, so no identifiable assets had been impressed with a trust.

    Re Goldcorp Exchange Ltd [1995] AC 74

    Purchasers of bullion, who had paid for it but had not taken delivery, claimed rights to it on the insolvency of the company. Their claims were rejected, apart from a group whose bullion had been segregated. There was no trust for the others as there was no identifiable property on which any trust could attach. No particular bullion had been segregated for them.

    In contrast, a trust of an unidentified section of intangible property is valid:

    In Hunter v Moss (in your Casebook) there was an oral declaration of a trust of 5% of the issued shares of a particular company. 1000 shares had been issued, so 5% was 50 shares. This was held to be sufficiently certain even though no particular 50 shares had been identified as subject to the trust.  Colin Rimer QC, the judge at first instance, thought it significant that the subject-matter of the trust was intangible, since tangible assets, although apparently similar, may have distinguishing characteristics, for example some bottles of wine might have deteriorated.  Whereas intangible property is all the same, provided the shares are of the same class, so there is no need to identify which 50 shares are being held on trust. Whilst Dillon LJ in the Court of Appeal stated that all the shares were identical, he did not refer to any distinction between tangible and intangible property.

    There have been many academic criticisms of this distinction between a trust of tangible and intangible property.

    In Holland v Newbury [1997] B.C.L.C. 369, The Times, July 18, 1997, (also known as Re Harvard Securities Ltd), Neuberger J discussed and criticised the authorities at length, but felt bound by the authority of Hunter v Moss to uphold  the distinction between tangible and intangible property.

     

    4.   Boyce v Boyce (1849) 16 Sim 476

    In this case, a testator devised his houses in Southwold to trustees on trust for his widow for life and after her death in trust to convey to his daughter Maria one of the houses, whichever she [ie Maria] should choose, and to convey “all my other houses” to his daughter Charlotte.

    Maria died in the testator’s lifetime and so could not choose any particular house.

    Consequently the trust in favour ofCharlottewas void as it was uncertain what property the trust applied to.

    5.   Re Golay’s Will Trusts [1965] 2 All ER 660

    The testator directed his executors to allow the beneficiary to “enjoy one of my flats during her lifetime and to receive a reasonable income from my other properties.”

    It was held that the trustees could select a flat (it is arguable that there was uncertainty as to which flat it should be, but this was not raised as an issue in the case) but the question arose as to whether the direction for “a reasonable income” was void for uncertainty.  Ungoed-Thomas J held the gift valid.

    Effect

    It is thus a question of construction in each case as to what is the effect of the particular limitation.

     

    Where a trust fails for lack of certainty of subject matter, the position is as follows:

    1.   if the property itself is uncertain, no trust is created;

    2.   if a purported ‘trust’ is grafted onto a gift, the donee takes the gift absolutely, as in Sprange v Barnard and Palmer v Simmonds, (above);

    3.   if the beneficial interests are uncertain, there will be a resulting trust, as in Boyce v Boyce (above).

    There is no uncertainty of subject matter if the means for determining it are laid down eg:

    1.   trustees are given a discretion to determine the beneficial interests; or

    2.   it is possible to apply the maxim ‘equality is equity’; or

    3.   settlor lays down an effective determinant as in Re Golay.

     

    Note that ‘the residue’ of an estate is ascertainable, and therefore certain.

    3.4     Certainty of objects

    Introduction

    A trust must be for ascertainable beneficiaries. The objects of a trust need to be certain so that the trust can be enforced in their favour by the court, if necessary.

     

    This is made clear in Morice v Bishop of Durham (1804) 9 Ves 399, where Sir William Grant MR said:

    “There can be no trust, over the exercise of which this Court will not assume control; for an uncontrollable power of disposition would be ownership, and not trust. If there be a clear trust, but for uncertain objects, the property, that is the subject of the trust is undisposed of, and the benefit of such trust must result to those, to whom the law gives the ownership in default of disposition by the former owner. But this doctrine does not hold good with regard to trusts for charity. Every other trust must have a definite object. There must be somebody, in whose favour the Court can decree performance.”

    (This dictum – affirmed on appeal – is taken to refer to the need for certainty of objects and also generally taken to be the source of the ‘beneficiary principle’ ie the idea that a private trust must normally be for beneficiaries, rather than for a ‘purpose’ (see Chapter 7 below), though it is probable that Sir William Grant only had the question of certainty of objects in mind.)

     

    The object/s of a private trust must be certain whether the trust exists for a purpose (rare – see Chapter 7) or, as is usual, for the benefit of persons.

     

    If it is impossible to say who is entitled to benefit, it may be impossible to prevent payments of trust income (or capital) to persons outside the class of objects – firstly because it may be impossible to say that the recipient is not an object; and secondly because the claimant complaining of the misapplication may not be able to establish his interest in the trust, ie that he is within the class of objects and thus has locus standi.

     

    Although the settlor must make it clear to the trustee who the beneficiaries of a trust are, the beneficiaries do not need to be told of the trust by the settlor.

     

    If the only reason for a trust failing is that the objects are uncertain, the trustees hold the property on resulting trust for the settlor or his estate.

    Tests for certainty of objects

    The test of certainty of objects (or beneficiaries) depends on the type of trust in question. A greater degree of certainty is required for a fixed interest trust than for a discretionary trust.

     

    In McPhail v Doulton [1971] AC 424, the House of Lords relaxed the test for discretionary trusts, adopting the less strict test which applies to powers.

     

    This has made it less important to distinguish discretionary trusts from powers, an issue which previously had often come before the courts because of the fine dividing line; Lord Wilberforce in McPhail v Doulton was critical of the fact that the entire validity of a disposition should depend on such a fine and artificial distinction. (An invalid trust would not be construed as a power. The authority for this is to be found in Re Shaw [1957] 1 WLR 729 and the dictum of Jenkins LJ in IRC v Broadway Cottages Trust [1955] Ch 20: “We do not think that a valid power is to be spelt out of an invalid trust”).

    3.4.1              Powers

    The test for certainty of objects of powers was laid down by the House of Lords in Re Gulbenkian’s Settlement Trusts [1970] AC 508. Lord Upjohn said:

    “The power is valid if it can be said with certainty whether any given individual is or is not a member of the class and does not fail because it is impossible to ascertain every member of the class.”

    The test is variously known as the “in/out test”, the “is/is not test”, the “given postulant test” or the “individual ascertainability test”.

     

    Compare the words from “and does not fail . . .” with the “list test”. (It has been suggested that this second part of Lord Upjohn’s test is concerned with evidential difficulty, whereas the first part concerns the test for conceptual certainty – see later.)

    3.4.2              Fixed interest trusts

    It is in the nature of a fixed interest trust that each beneficiary has a definable interest in the trust fund. If the trustees are to distribute it equally or in fixed proportions, they must be able to say who all the beneficiaries are.

     

    The test for a fixed interest trust is the “list test” ie it must be possible to draw up a complete list of all the beneficiaries – IRC v Broadway Cottages Trust [1955] Ch 20 (in your Casebook).

     

    In the case of a class gift, this test is sometimes referred to as the “class ascertainability test” because it must be possible to ascertain who all the members of the class are.

     

    For example, “to all my grandchildren living at my death” – it is possible to list all the grandchildren; (if the existence or whereabouts of a particular grandchild cannot be ascertained, the trust is still valid as the court may make an appropriate order as to the distribution of the trust fund).

    3.4.3              Discretionary trusts

    Before McPhail v Doulton [1971] AC 424 it was thought that the “list test” applied to discretionary trusts. It was accepted that if the trustees refused to exercise their trust, the court would, in the last resort, do so by ordering equal division among the beneficiaries, relying on the maxim “Equality is equity” (Kemp v Kemp (1801) 5 Ves 849). It necessarily followed from this that a complete list of beneficiaries must be capable of being drawn up.

     

    However McPhail held that the test for certainty of objects in a discretionary trust is the “is/is not test”, not the “list test”.

     

    Lord Wilberforce set out his reasons for adopting the “is/is not test” rather than the “complete list test”.  He said that in executing the trust, the court should try to give effect to the settlor’s intentions; equal division would often not be the most appropriate method for this type of trust (although it might be for a ‘family’ trust in favour of a limited class). Although the trustees have a duty to consider the range of possible beneficiaries and select from the class, this does not mean that “they must have before them, or be able to get, a complete list of all possible objects”.

     

    Generally, a settlor intends to benefit an inner (or core) category of beneficiaries and not the outer category. In executing the trust according to the settlor’s intentions, distribution may be made unequally and it may exclude some (or most) of the class.

     

    Conceptual uncertainty and evidential difficulty

    Lord Wilberforce distinguished between conceptual certainty and evidential difficulties.  More will be said about this distinction when considering Re Baden’s Deed Trusts (No. 2) [1973] Ch 9, below, but the following explanation may assist.

     

    Conceptual certainty’ refers to the precision of language used by the settlor to define the class of persons whom he intends to benefit.

     

    Evidential certainty’ refers to the extent to which the evidence in a particular case enables specific persons to be identified as members of the class (ie as coming within the definition).  The question therefore is whether you can come up with some evidence to categorically prove that the particular individual comes within the class, for example, a birth certificate to prove that X is Y’s son and therefore within the class of Y’s ‘children’.

     

    (Note that Pettit says that the latter is sometimes wrongly confused with the extent to which the whereabouts or continued existence of persons identified as beneficiaries or potential beneficiaries can be ascertained, for example, where there is no last known address for an individual).

     

    It seems that a fixed trust requires both conceptual and evidential certainty in order to draw up a complete list of all beneficiaries, but that the “is/is not test” for discretionary trusts is concerned only with conceptual certainty and not with evidential certainty (see inter alia Sachs LJ in Re Baden’s Deed Trusts (No 2) [1973]).

     

    Administrative unworkability

    After referring to the distinction between conceptual certainty and evidential difficulties, Lord Wilberforce said that even if the class is conceptually certain, making the discretionary trust valid, it may be void for administrative unworkability.  Administrative unworkability will be looked at in more detail after seeing how the “is/is not test” was applied.

     

    Re Baden’s Deed Trusts (No. 2) [1973] Ch 9

    After the House of Lords in McPhail v Doulton decided that the wording constituted a trust, it remitted the case to the Chancery Division to determine whether the trust was valid, applying the relevant test for certainty of objects. This resulted in an appeal to the Court of Appeal, whose decision in Re Baden’s Deed Trusts (No. 2) is the subject of much academic debate. The three Lords Justices gave three different judgments, none free of problems.

     

    Views differ on the correct interpretation of this case and it is unwise to be too dogmatic, but it is submitted that what follows is the preferred interpretation.

     

    Sachs LJ accepted that the term “relatives” is conceptually certain. “A person is a relative of an . . . employee. . . , if both trace legal descent from a common ancestor . . .”

     

    After one has established that the class is conceptually certain, it is then for each claimant to prove that he is within the class. This is a question of evidence. Where a claimant does not prove himself to be within the class, he is outside it. It makes no difference to the validity of the trust whether he is proved positively to be outside the class or merely fails to prove that he is within the class. In both cases that individual claimant is excluded from benefiting under the trust.

     

    Sachs LJ conceded that the class of “relatives” is “capable of almost infinite expansion, but proof of relationship soon becomes extremely difficult in fact. That factor automatically narrows the field within which the trustees select.” In other words, conceptual difficulties may be resolved by evidence.

     

    Although this does not seem to comply strictly with Lord Wilberforce’s test, it is arguably within the spirit of the court upholding a trust.

     

    Megaw LJ adopted a test rather like the test favoured by Lord Denning MR but rejected by the House of Lords in Re Gulbenkian’s Settlement Trusts. (See your Casebook. Substitute Lord Denning’s “any one person” for Megaw LJ’s “substantial number”.)

     

    It seems that Megaw LJ is in effect saying that, if as a matter of evidence a “substantial number” is within the class, then it is conceptually certain. Is he permitted to take this view? Should he not first have to find the class of objects conceptually certain before considering which individuals (as a matter of evidence) are within it?

     

    Stamp LJ’s judgment seems to accord literally with the test set out by Lord Wilberforce. He makes it clear that the test is being applied at the conceptual level and makes explicit the need for a test for certainty of objects by saying that unless one knew the size of the class, he knew of “no principle upon which [a survey of the range of objects or possible beneficiaries] could be conducted or where it should start or finish.” If the test is satisfied merely by substituting a dictionary definition (or something similar) for the troublesome term (such as “relatives”) as Sachs LJ seems to suggest, that only puts back the problem, so the redefined term should itself have to pass the “is/is not test”. For this reason, he considered the wider meaning of the term “relatives”, accepted by Sachs and Megaw LJJ, to be conceptually uncertain.

     

    Instead, he held it to be certain by adopting the narrower meaning of “next of kin”, as this term has a specific legal content, enabling one to say whether a given individual is or is not within that narrower category.

     

    It may be questioned whether Stamp LJ was entitled to narrow the meaning of the term “relatives”.

     

    Administrative (un)workability

    Two points were considered in McPhail v Doulton, namely conceptual uncertainty and evidential difficulties (see 3.4 above). A third point, dealing with administrative unworkability, was mentioned by Lord Wilberforce in McPhail v Doulton and came up in R v District Auditor ex p West Yorkshire Metropolitan County Council [1986] 26 RVR 24.  Without deciding whether the class of potential beneficiaries, “the inhabitants ofWest Yorkshire” – being some two and a half million people – was conceptually certain, Lloyd LJ considered that the trust was “quite simply unworkable”.

     

    This does not seem to apply to powers – see Templeman J in Re Manisty’s Settlement [1974] Ch 17 who concluded “that a power cannot be uncertain merely because it is wide in ambit.”

    3.4.4              Gift subject to a condition precedent

    It is important to decide whether a particular gift is a discretionary trust or a gift subject to a condition precedent, as shown by Re Barlow’s WT [1979] 1 All ER 296 (in your Casebook). Here the testatrix died owning a large collection of valuable pictures. Some of these were given to her executor to hold on trust for sale subject to a direction that “all or any member of my family and any friends of mine who wish to do so [may] purchase any of such pictures” at the lower of probate value or 1970 catalogue price.

     

    This was held to be a gift subject to a condition precedent, not a discretionary trust.

     

    One of the questions at issue in the case was whether the direction was void for uncertainty of objects. What did “friends” mean?

     

    The case for validity rested on Re Allen [1953] Ch 810 (in your Casebook), a case concerning the validity of a gift subject to a condition precedent, which decided such a gift is valid if it is possible to say of one or more persons that he or they qualify although it may be difficult to say of others whether they qualify or not.

     

    In Re Barlow’s WT, Browne-Wilkinson J decided that the direction conferred a series of options to purchase, each conditional on the claimant being a ‘friend’. The direction was valid, as anyone who could prove that “by any reasonable test he or she must have been a friend of the testatrix” was entitled to exercise the option (and he indicated certain minimum requirements for friendship, which you may or may not agree with!)  He noted that if it had been a discretionary trust, the word “friends” would have been too uncertain, citing Re Lloyds Trust Instruments 1970, unreported.

     

    (Note that, with a gift, the point is there is no discretion involved and, therefore, no need to survey a class. It is only necessary to consider each individual claimant in turn.)

     

    The important point is that Barlow was a case of a gift subject to a condition precedent, not a discretionary trust.  The test for certainty in the case of a gift is the less strict Re Allen/Re Barlow test, not the “is/is not test”.

     


     

     

     

     

     

    Chapter x

     

     

     

     

     

     

     

     

     

     

    Formalities

     

     

     

     

     

     

    Learning Outcomes

     

     

    By the end of this chapter you should be able to:

    1.  identify the legal requirements for creating trusts;

    2.  understand why the law requires some trusts to be created by special means;

    3.  explain the exceptions to the rules on formalities;

    4.  apply these rules to problem situations.

     

     

     

     

     

     

     

     

     

     

     

    4.1 Introduction

     

     

    If a settlor (S) wishes to give the benefit of his property (Blackacre) to someone (B), there are three basic methods of doing so (all mentioned in Milroy v Lord (1862) 31 LJ Ch 798 discussed in Chapter 5):

    1.  In the most straightforward case, S may make an outright gift to B, by transferring the legal title to B, the equitable interest passing with it to B;

    2.  S may transfer the legal title to trustees (TT) and declare that they are to hold on  trust for B; TT will hold legal title and B will be the equitable owner.  This method combines features of 1 and 3;

    3.  S  may  retain  the  legal  title  but  declare  that  henceforth  he  holds Blackacre on trust for B.  S has declared himself trustee of the property for the  benefit of B, who is now the equitable (but not legal) owner of Blackacre.

     

     

    These three alternatives may be represented by the diagram: Legal  1) S     B

    Estate

    3) S                             2) S                             TT

     

     

    Equitable

    Interest                               B                                       B

     

    Note: This chapter is concerned with what happens below the imaginary line dividing legal and equitable ownership.  By convention in the law of trusts, the  term  “formalities” in  its  narrower  sense  refers  only  to  the  statutory requirement for some form of writing.  In its wider sense, it may refer to the requirements for  transferring legal title (that is, “constitution”), which is the subject of the next chapter.

     

    4.2    Declarations in general

     

     

    If a person wishes to create a trust on death, he must comply with the Wills Act  1837 s9.                          All testamentary dispositions (including trusts) must be in writing,   signed  by  the  testator  and  attested  (ie  witnessed)  by  two independent witnesses in the presence of the testator.

     

    Lifetime (or inter vivos) trusts may be declared informally (orally or even by conduct – see Paul v Constance [1977] 1 WLR 527, in Chapter 3 above) unless  there is a specific requirement for them to be declared in writing.

     

     

     

     

     

    36

     

    Subsections 53(1)(b) and (c) of the Law of Property Act 1925 require writing for certain trust dealings.

     

    4.3    Declarations of a trust of land

     

    Failure  to  comply  with  s53(1)(b)  would  render  the  declaration  of  trust unenforceable, rather than void.                              It would seem that, if the settlor orally declared a trust of land, then subsequently evidenced it in writing, the date of the declaration would be the date of the original oral declaration.

     

    S53(1)(b) applies to  express  trusts; s53(2) LPA  1925 provides  that the requirements of s53(1) do not affect the creation or operation of implied, resulting and constructive trusts.  S53(2) LPA exempts these trusts from the need for writing. A good example of the operation of s53(2) is the case of Hodgson v Marks [1971] Ch 892.

     

    4.4    Dispositions of subsisting equitable interests

    Section 53(1)(c) of the Law of Property Act 1925 sets out the formalities for the disposition of subsisting  (or pre-existing) equitable interest, whether in land or pure personalty.  The interest is subsisting in the sense that, before the  disposition  in  question,  legal  and  equitable  ownership  have  been separated.

     

    S53(1)(c) would  apply,  for  example,  where, in  2001,  S  had  transferred assets to trustees “to hold upon trust for A for life, remainder to B”.  In doing so, legal ownership is vested in the trustees, whilst the beneficiaries (A and B in turn) enjoy equitable ownership.  In 2004, A assigns his life interest to C. This assignment must be in writing to comply with s53(1)(c) as it amountst o a disposition (ie assignment) of a subsisting equitable interest (namely the life interest).

     

    Another example would be where A transfers the bare legal estate to his nominee, while retaining his full equitable interest in the property.  If A later wished  to assign the benefit of that property to another, the assignment would have to be in writing (unless it fell within the “exception” created by Vandervell v IRC, below).

     

    Section 53(1)(c) applies to dispositions of subsisting equitable interests in land and pure personalty. On the first declaration of a trust of Blackacre, the settlor  must  comply  with  s53(1)(b) but  not  s53(1)(c) (ie  when  originally setting up the trust).   At this point, legal and equitable ownership become separated (ie they are no longer in one and the same person, the settlor).  If one of the beneficiaries of the trust of Blackacre later wishes to assign his interest, the assignment must comply with s53(1)(c), not s53(1)(b).

     

    This may be represented as follows:

     

    s53(1)(b)

     

    S (declares himself trustee)


     

     

     

    assignment

    A                          C

    s53(1)(c)

    + B

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Unlike s53(1)(b),  s53(1)(c) requires the  disposition  to  be  in  writing (not merely  evidenced in  writing).The  effect of  non-compliance is  that the purported disposition is void.

     

    s53(1)(c) allows for signature by an agent but only if he has been given written authorisation for this.

     

    “Disposition” is a very wide term and includes any act by which a person ceases to own the item of property in question. It could include a sale, a gift, an assignment, and a declaration of trust.

     

    In Timpson’s Executors v Yerbury [1936] 20 TC 155 Romer LJ said at 182:

     

    “Now  the  equitable  interest  in  property  in  the  hands  of  a  trustee  can  be disposed of by the person entitled to it in favour of a third party in any one of four different ways.  The person entitled to it:

    1. can assign it to the third party directly;
    2. can direct the trustees to hold the property in trust for the third party (see per Sargant J in Re Chrimes [1917] Ch 30 at 36); can contract for valuable consideration to assign the equitable interest to him; or
    3. can declare himself to be a trustee for him of such interest.”

     

     

    Note:  as  regards  3  above  that,  where  there  is  a  contract  for  valuable consideration which is enforceable by specific performance (an order of the court compelling the defendant to carry out his positive obligations under the contract; in  this case, to transfer the property in question), a constructive trust  arises  in  favour  of  the  intended transferee.       (See  Chapter 20  on equitable remedies for a fuller explanation of specific performance.)

     

    There is no doubt that s53(1)(c) applies to a straightforward transfer as in method 1.  More doubts have been raised in relation to methods 2 – 4.  (The case law is often complex, as it involves attempts to avoid taxation.)

     

    See the case of Zeital v Kaye [2010] EWCA Civ 159, where the Court of Appeal refused to construe an imperfect transfer of legal title to shares as an assignment of the equitable interest within s.53 (1) (c), as that was not what was intended, and also the document had not been signed by the equitable owner; it had been  signed  by their trustee, but the trustee had not been authorised as an agent for the purpose of s.53 (1) (c). (This case is relevant again in the next chapter on Constitution.)

     

     

     

    4.4.1            Stamp duty

     

    Stamp duty was a tax leviable upon certain documents transferring property. If a transaction could be accomplished without a document, then stamp duty could be  avoided.   If a document was necessary to the transaction, then stamp duty was unavoidable.

     

    Stamp duty, for the purposes of the cases we are going to look at, was a duty leviable ad valorem, ie levied on a percentage of the value transferred by the document of transfer.  This meant that the greater the value of the item transferred, the greater the tax burden.  If no value was transferred (as where a bare legal estate is transferred), no duty was due.

     

    In the 1950s and 1960s settlors attempted to avoid ad valorem stamp duty by seeking to avoid making dispositions of equitable interests by means of leviable documents.

     

    Note: Students are not examined on stamp duty: the discussion of stamp duty is to provide a background to enable them to understand the point of trust law  decided by the cases.   Students should also note that, although stamp duty land tax still exists, the rules have changed significantly since the cases discussed below, particularly in relation to conveyances of land.  This explanation should therefore  not be taken as an accurate reflection of the current law.  For the up-to-date rules, students are referred to the standard practitioner texts.

     

     

     

    4.4.2            Direction to trustees to hold on trust for another

     

    1.  In Grey v IRC [1960] AC 1, the settlor, Mr Hunter, wanted to avoid stamp duty in creating settlements for his grandchildren.

     

     

    The case can be explained as follows:

     

    Step 1:

    Six settlements were created by Mr Hunter. These were of nominal value so no stamp duty arose.

     

    Step 2:

    Mr Hunter transferred 18,000 shares to the trustees to hold as nominees for Mr Hunter.  Since Mr Hunter owned all the equitable interest in these shares after they were transferred, no value passed.

     

    Step 3:

    Mr Hunter orally and irrevocably directed the trustees to hold the shares according to the terms of the six nominal settlements. The intention was that  the  shares should be held on trust for Mr Hunter’s grandchildren under his six original settlements and not on trust for Mr Hunter himself.

     

    Step 4:

    All of  this  was  confirmed  by  deed  executed by  Mr  Hunter and  the trustees.  The deed stated that Mr Hunter, as settlor, executed the deed “to testify the giving of the directions (ie to the trustees) and their nature”.

    Mr Hunter had intended that the value in the shares should pass from himself to the beneficiaries of the six separate settlements by virtue of the oral direction to the trustees to hold the shares on the trusts of the settlement (step 3).  It was argued that the term “disposition” was limited in its meaning to “grants and assignments”, so that the oral direction was not a “disposition”  within s53(1)(c) and hence did not need to be in writing.

    The  House  of  Lords  took  the  view  that  the  oral  direction  was  an attempted    disposition of              subsisting                equitable      interests             and            was ineffective since it was not in writing as required by s53(1)(c) LPA 1925. Accordingly,  the disposition of  the subsisting equitable interests  had been made by virtue of the confirmatory deed executed by Mr Hunter. That being a document which passes value, ad valorem stamp duty was leviable thereon.

    In the House of Lords, Lord Radcliffe said that the word “disposition” in s53(1)(c) covered all means and devices whereby an equitable owner effectively transfers an interest to someone else.  Although it seems reasonably clear that the oral direction was a “disposition” within the meaning of s53(1)(c), it is less clear why the House of Lords levied duty on the deed.  If the parties intended the deed merely to confirm a state of affairs, it does not follow that, if that state of affairs had failed to come about, the deed – intended to be confirmatory – should bring about that state of affairs.

    2 The facts of Vandervell v IRC [1967] 2 AC 291 are complex.  By way of introduction, there are three significant pieces of litigation which arose out of Mr Vandervell’s affairs. The first is Vandervell v IRC, the case we are about to look at.  The second is a procedural case called Vandervell Trustees Limited  v White [1971] AC 912, the substance of which is outside  the  scope  of  this  manual. The  third  and  final  case  is  Re Vandervell’s Trusts (No. 2) [1974] Ch 269, which you are not required to study in any depth.

     

    Vandervell v IRC: In 1958 Guy Anthony Vandervell decided to institute a  chair  of pharmacology at the Royal College of Surgeons by giving them a  substantial sum of money.  He wished to give the College the ncome from certain shares, but he wished to settle the shares in favour of his children afterwards.  A scheme was devised which would enable Mr Vandervell to give untaxed income to the Royal College of Surgeons for the purpose of funding the chair.

     

    By way of background explanation, a settlor under s415 Income Tax Act 1952 (since replaced) would be liable for surtax (since abolished) unless he had  divested himself of all interest in any income arising under, or property comprised in, the settlement.

     

    If there was any possibility that Mr Vandervell could take an interest in the income or any of the property in the settlement, then he would have to pay the  surtax on the income of the trust even though he received none of the income himself.

     

    The scheme was as follows:

     

    Step 1

    Previously, Mr Vandervell had transferred the bare legal estate in certain shares to the National Provincial Bank.  The bank was Mr Vandervell’s nominee while he remained the absolute beneficial owner.

    Step 2

    Mr Vandervell orally instructed his bank to transfer the shares to the Royal  College of Surgeons.     The bank transferred the shares to the Royal College of Surgeons.

     

    Step 3

    Mr Vandervell was advised not to lose control of the shares.  Hence, it was arranged that the Royal College of Surgeons should grant an option over those shares to the Vandervell Family Trustee Company.

     

    The effect of the option was that the Trustee Company could buy the shares from the College for a nominal sum.

     

    Mr Vandervell meant the Trustee Company to hold the option either on trust for his children or on trust for the employees of a company he ran. Fatally (as it turned out) he did not decide who the beneficiaries should be.

    The scheme was intended to operate like this: Mr Vandervell would transfer the shares (which are income-producing) to the Royal College of Surgeons via his bank.   Dividends would be declared on the shares while they were in the hands of the College.  Since the College was a charity  no income tax would be due in respect of the dividends in the College’s  hands.             Therefore the charge to surtax would be avoided which would otherwise have arisen (had Mr Vandervell arranged for the dividends to be declared while he was the owner).

     

    As the College was asked to give the option to the Trustee Company, the shares were merely “washed through” the College, dropping off the dividends   on  the  way  to  their  ultimate  destination  –  the  Trustee Company.

    Step 4

    Mr Vandervell then arranged for dividends to be declared on the shares of an  amount almost equal to the sum required to endow the chair of pharmacology.

     

    The Inland Revenue assessed Mr Vandervell to surtax in respect of the dividends declared in favour of the College on the footing that s415 Income Tax Act applied. The Revenue’s arguments were twofold:

     

    a) Because the bank held only the bare legal estate in the shares and Mr  Vandervell held the entire equitable interest therein, when Mr Vandervell instructed the bank to transfer the shares to the College, the bank  transferred only what the bank owned ie the bare legal estate.  The   equitable  interest  in  the  shares  remained  in  Mr Vandervell.  For  Mr  Vandervell  to  have  divested  himself  of  the equitable interest in the  shares, he would have had to do so in writing so as to comply with s53(1)(c) LPA.  As there was no such written disposition, he remained the  owner in equity of the shares. He, therefore, owned the income from the shares (ie the dividends) in equity and was liable to tax thereon in the usual way.

    The House  of  Lords  rejected  this  first  argument.         Normally  the disposition of a subsisting equitable interest had to be in writing in order  to  comply  with  s53(1)(c).              However,  where  the  absolute beneficial owner (Mr Vandervell) gives oral instructions to the bare legal owner (the bank) to transfer the property (the shares) to a third party (the  College) intending his beneficial interest to pass to the same  third  party,  the  passing  of  the  beneficial  interest  (ie  the disposition of the subsisting equitable interest) need not be in writing. This amounts to an exception to s53(1)(c).

    Thus if T holds property on trust for B, so that T owns the bare legal estate and B owns the equitable interest in that property absolutely, and  B  instructs T to transfer  the property to X then, if  it  is B’s intention that  X  should be the absolute legal and equitable owner, the transfer of the bare legal estate by T to X will suffice.  It carries the equitable interest  with  it and no separate written disposition of the subsisting equitable interest will be necessary.

     

    b) When the option was granted to the Trustee Company, it acquired the  option as trustee (not beneficially) but the trusts of the option were never  declared.   There was therefore a resulting trust of the benefit of the  option back to Mr Vandervell.         In other words, the Trustee   Company  held   the   option   on   resulting  trust   for   Mr Vandervell.  If the option had been exercised, the Trustee Company would  have held the shares on trust for Mr Vandervell absolutely. He had thus failed to divest himself of his entire interest in the shares and so was liable  to surtax on the dividends declared on those shares.

    Mr Vandervell failed on this second argument and was liable to surtax on the dividends paid to the College.

     

     

    3.  Re Vandervell’s Trusts (No. 2) [1974] Ch 269

    A further  problem  connected  with  a  surtax  liability  of  Guy  Anthony Vandervell arose once the option to buy back the shares had been exercised  by  the  Trustee  Company. The  case  is  complex and  it  is difficult  to find a clear ratio that could be applied to other situations. Accordingly, it is not covered on this course.

     

     

     

    4.4.3            Contract to assign an existing equitable interest to another

     

    Where there is a contract for valuable consideration to assign an equitable interest, the position on the application of s53(1)(c) is not entirely clear.

     

    In Neville v Wilson [1996] 3 All ER 171, CA held that a contract for valuable consideration to assign an equitable interest in shares in a private company operated to transfer the interest, despite the absence of writing required by s53(1)(c)  LPA 1925.         The making of a specifically enforceable contract creates a constructive trust in favour of the transferee, so s53(2) applies and dispenses with the requirement for writing under s53(1)(c). Nourse LJ, giving the judgment of the Court of Appeal, adopted the reasoning of Lord Radcliffe in his dissenting judgment in Oughtred v IRC [1960] AC 206.

     

    Unfortunately Oughtred v IRC does not offer a clear conclusion on the point: whilst Lord Radcliffe thought s53(1)(c) did not apply, Lords Cohen and Denning  appear to have thought that it did and Lords Keith and Jenkins expressed no view either way!

     

     

    4.4.4            Self-declaration of trust of an existing equitable interest for another

     

    Where a beneficiary (B) under an existing trust declares himself as trustee of his equitable interest for X, B is in effect creating a sub-trust but the position on the application of s53(1)(c) is uncertain.

     

    s53(1)(c) does not apply to the creation of new trusts (the relevant provision is s53(1)(b), which applies only if the trust relates to land);

     

    BUT, if the sub-trust is a ‘bare’ trust, where B has no active duties, B would effectively ‘drop out’ of the picture and the original trustee would hold on trust  directly for X – Grainge v Wilberforce (1889) 5 T.L.R. 436 and Re Lashmar [1891] 1 Ch 258.

     

    This looks rather like a disposition of B’s equitable interest to X (not unlike the effect in Grey v IRC), to which s53(1)(c) might well be held to apply.

     

    If, on the other hand, B has active duties (eg the sub-trust is a discretionary trust) or B declares a trust of only part of his interest (eg declares that he holds his equitable interest on trust for himself for life, remainder to X), some writers argue that s53(1)(c) would not apply as this would be the creation of a new trust.

     

    Other writers argue that, being a trust of a subsisting equitable interest, s53(1)(c) would apply. See the article by B. Green (1984) 37 MLR 385.

     

    For a Court of Appeal case which touches on this issue, see Nelson v Greening and Sykes (Builders) Ltd [2007] EWCA Civ 1358, particularly paragraphs 56-58. That was a rather obscure and special case about the effect of a land contract. The contract created a constructive trust in favour of the purchaser. The purchaser passed on the benefit of the contract to a third party, in effect creating a subtrust of the constructive trust. Lawrence Collins LJ referred to  Grey v IRC and to the “dropping out of the picture” principle, and was of the opinion that the purchaser may have disposed of his equitable interest but was  still  a trustee of his interest (which was the issue in the case), holding it on trust  for the third party. In any event, he thought the old principles on subtrusts were far removed form this case. His dicta are not binding on the formalities issue that we are concerned with, but they provide recent dicta that add to the debate.

     

    See also the case of Zeital v Kaye [2010] EWCA Civ 159, where Rimer LJ at paragraph 36, assumes that a sub-trust of an equitable interest does not fall within s.53 (1) (c).

     

     

     


     

     

     

     

    Chapter xx

     

     

     

     

     

     

     

     

     

     

    Secret Trusts

     

     

     

     

     

     

    Learning Outcomes

     

     

    By the end of this chapter you should be able to:

    1.  understand the justification for upholding the validity of secret trusts;

    2.  identify the different rules that apply to fully and half secret trusts;

    3.  apply these rules to factual scenarios.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    63

     

     

     

     

    6.1              Introduction

     

     

    1.  Normal requirements for testamentary trusts

    To create a valid gift/trust to take effect on death, s 9 Wills Act 1837 must be complied with.

     

     

     

     

    2.  Reasons for using secret trusts

    A will is a public document, but a person may wish to set up a trust on death without revealing the details in his/her will, eg:

    a)  he may not wish certain gifts (such as to a lover or illegitimate child)

    to be known;

    b)  he may be undecided as to the details of who is to benefit;

    c)  under old law, land could not be left by will for charitable purposes.

     

     

    3.  Secret trusts – mechanism

    One of two methods might be used to set up a secret trust:

    a)  outright gift in the will to the intended trustee – fully secret trust,

     

    b)  gift in the will to the intended trustee stated to be ‘on trust’ – half secret trust.

    In either case, the details of the trust do not appear in the will but the  trustee  is  separately  informed  by  the  testator,  during  his lifetime, of the trusts on which the property is to be held.

     

     

    4.  Validity

    Any gift/trust which is to take effect on death must normally comply with the formalities of s 9 (unless it is a valid donatio mortis causa).

    A  document  which  does  not  comply  with  the  Wills  Act  can  be incorporated by reference into a will, provided it is in existence when the will is executed and is referred to in the will as being then in existence. However, if this is done, the document is treated as part of the will and becomes public. This would defeat the object, namely secrecy, so, can there be a valid trust  based on informal instructions to the intended secret trustee?

    The courts have recognised such trusts as valid provided certain criteria are fulfilled but there is some disagreement about the rationale behind this and the exact status of the trusts.

    More difficulties seem to  have arisen in  connection  with half secret trusts, recognition of which was not firmly established until considerably later than fully secret trusts. As a result, the rules relating to fully and half secret trusts have evolved with certain inconsistencies.

     

     

     

    64

     

    5.  Standard of proof

    The onus is on the person claiming that a trust exists. The standard of proof  for establishing the trust is generally the normal civil standard, namely proof  on a balance of probabilities (Re Snowden [1979] Ch

    528).

     

     

     

     

     

    6.2      Requirements for a valid secret trust

     

     

    According to Kasperbauer v Griffith [2000] WTLR 333 the requirements for the trust to be enforced are:

    1.  an intention by the testator to create a trust;

    2.  communication of the trust to the intended trustee; and

    3.  acceptance of the trust by the trustee.

    The testator then relies on that acceptance by making a will, leaving a will unrevoked or not making a will at all.

     

     

     

     

     

    6.3      The three certainties

     

     

    Secret trusts, like any other form of express trust, must satisfy the three certainties  of  intention,  subject  matter  and  objects  (see  Chapter  3).  In particular, it must be clear that the person setting up the trust intended to impose a binding legal obligation on the trustee, not merely a moral or family obligation.

     

    In Kasperbauer v Griffith the testator’s statement that his wife “knows what she  has  to do” with the house was held to be too vague to create an enforceable legal obligation on the wife to hold the house on a secret trust. Similarly, in  Margulies v Margulies (1999-2000) 2 ITELR 641, a father’s ambiguous  statements  about  the  claimant’s  older  brother  “knowing  his wishes” and “giving  what’s appropriate” were held not to create a binding legal obligation.   A further  argument that the father left these statements deliberately vague for tax reasons was also rejected by the court.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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    6.4              Fully secret trusts

     

     

    A fully secret trust is one where there is no indication on the face of the will (if there is one) that a trust exists. There is apparently an absolute gift to the recipient. Unless a valid secret trust is established, the person inheriting will take the property beneficially.

     

    If there is no communication to the fully secret trustee or acceptance by the fully  secret trustee, then the legatee’s conscience is clear and there is no question of using the statute as an instrument of fraud (see below), so he may take the legacy absolutely.

     

     

     

    6.4.1              Communication

     

    1.  Timing of communication

    With a fully secret trust, communication must take place before death, whether  before or after the signing of the will (if any): Wallgrave v Tebbs (1855) 2 K & J 313. Instructions to hold on charitable trusts were not  communicated to legatees who took absolutely on face of will, but were found amongst the testator’s papers after his death.

    Held: no valid trust; the legatees had not been informed of the testator’s intentions during his lifetime, so they could take free of the trust.

     

     

    2.  What must be communicated

    a)  Existence of the trust

    If a trust is to be enforced against an apparent absolute legatee, then there must be communication of the fact of the trust (ie its existence) Wallgrave v Tebbs (above).

    If the fact of the trust is communicated inter vivos, the legatee cannot take beneficially as his conscience is bound.

     

    b)  Terms of the trust

    If the trust is to be enforced, its terms as well as its existence must be communicated inter vivos. If the trust is communicated but not its terms, the property is held on resulting trust.

    In Re Boyes (1884) 26 Ch D 531, property was left to the testator’s solicitor, who had agreed to hold the property on the terms he would receive. The testator did not, as promised, give instructions to the solicitor on how the property was to be held. Details of the intended trust   were  found  after  the  testator’s  death  in  two  unattested documents.

    The Court of Appeal held that there was a resulting trust to the testator’s estate as the trust had not been properly communicated; per Kay J: “The essence of all these decisions is that the devisee or legatee accepts a particular trust which thereupon becomes binding upon him, and  which it would be a fraud in him not to carry into effect”.

     

     

     

     

     

     

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    c)  The property subject to the trust

    The deceased  must  have  communicated  details  of  the  property subject  to the trust: Re Colin Cooper [1939] Ch 580. The testator left £5,000 to 2 people and communicated the terms of the trust to them.  By  a  later codicil, he increased the sum to  £10,000. The addition was not communicated to the intended trustees.

    Held: the first £5,000 was subject to the trusts; the other £5,000 was held  on resulting trust.   This was a half secret trust case, but the principle applies equally to fully secret trusts.

     

     

    3.  Method of communication

    Communication can generally be oral or in writing (but see below where land is involved).

    It seems there will be sufficient communication if the terms are given to the intended trustee, during the testator’s lifetime, enclosed in a sealed envelope, to be opened after the testator has died. It was considered in Re Keen [1937] Ch 236 that this would suffice, provided the trustee is aware that the envelope contains the terms of the trust and he accepts it on that basis; per Lord Wright  MR, “a ship which sails under sealed orders,  is  sailing  under  orders   though  the  exact  terms  are  not ascertained by the captain until later”.

     

     

    4.  Communication not made to all trustees

    If the testator communicates the trust to one of several trustees, but not to all of them, are they all bound by the trust?

    a)  general rule: only those to whom communication is made are bound by the trust (since only their consciences are affected);

    b)  exception: if the gift is to joint tenants, as opposed to tenants in common,  all  are  bound  if  communication  took  place  before  the execution of the will (but not if it took place after).

    In Re Stead [1900] 1 Ch 237, Farwell J reviewed the earlier authorities and found this to be the state of the law, although he (like many others) felt it difficult to justify.

    So, if the legatees are to take as tenants in common, those to whom communication was made are bound by the trust, but those to whom no communication was made may take the property beneficially.

    If the legatees are to take as joint tenants, where communication was made before the will was executed, all the joint tenants are bound. (See Co-ownership in Land Law on how to ascertain whether there is a joint tenancy or tenancy  in  common.) Where communication occurred after execution, only those to whom communication was made are bound by the trust.

    Note that Re Stead concerned a fully secret trust of personal property. It is unclear whether the principle can or should be applied to fully secret trusts of land or to half secret trusts.

     

     

     

     

     

     

     

     

     

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    6.4.2              Acceptance

     

    Acceptance of the trust is necessary in order to bind the secret trustee. It can be express or inferred and silence may count as acquiescence: Moss v Cooper (1861) 1 J & H 352 per Wood V-C “Acquiescence either by words of consent or by  silence”.  What is vital is that the testator must reasonably believe that the trust has been accepted.

     

     

     

    6.4.3              Reliance on Acceptance

     

    In reliance on the acceptance or acquiescence, the gift is made, or is left unrevoked (Moss v Cooper) or the deceased refrained from making a will (Stickland v Aldridge (1804) 9 Ves 516, where there was a failure to make a will, on the strength of an undertaking of the deceased’s next of kin).

     

     

     

    6.4.4              Carrying out the secret trust:

     

    In most cases, the obligation is to make some inter vivos transfer of property but in  Ottaway v Norman [1972] Ch 698, the doctrine was held to apply equally to an obligation to make a will in favour of the secret beneficiary. The testator  left  his  freehold  bungalow  to  his  housekeeper.  It  was  agreed between  them  that  she  would  devise  the  bungalow  by  her  will  to  the testator’s son, which she failed to do.

     

    The court held that the son was entitled to the bungalow on the basis that the obligation was imposed and accepted and the means of carrying out the obligation was immaterial.

     

    Brightman J said

     

     

     

    “I  am informed that there is no recent reported case where the  obligation imposed on the primary donee is an obligation to make a will in favour of the secondary donee as distinct from some inter  vivos transfer. But it does not seem to me that that can really be a distinction which can validly be drawn on behalf of the defendant in  the present case. The basis of the doctrine of a secret trust is the obligation imposed on the conscience of the primary donee and it does not seem to me that there is any materiality in the machinery by which the donor intends that obligation shall be carried out . . .”

     

     

     

    6.5              Half-secret trusts

     

     

    This type of trust arises where it is clear from the face of the will that the property is left on trust but the will does not contain the terms of the trust, eg the will provides:

     

    “£10,000 to X on trust” or “£10,000 to Y on the trusts I have communicated to him”.

     

     

     

     

     

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    If there is a clear intention to create a trust but the half secret trust is not valid, there will be a resulting trust.

     

    The original justification for enforcing fully secret trusts was prevention of fraud:  it  would  be  fraudulent if  the  secret trustee kept  the  property for himself. With half-secret trusts, however, the requirements of the Wills Act cannot be used as  an instrument to defraud the beneficiary, as the half- secret trustee is a trustee on the face of the will and cannot take beneficially. The courts were, therefore, less  ready to accept the validity of half secret trusts (see eg Moss v Cooper, where it was said that a mention in the will prevented the operation of the doctrine of secret trusts).

     

    Hence the courts had to find some other justification for enforcing half secret trusts.  Their validity was not firmly established until the decision of the House of Lords in Blackwell v Blackwell [1929] AC 318. £12,000 was left by codicil to five people to be applied “for the purposes indicated by me to them”. The terms of the  trust were communicated before the codicil was executed. The House of Lords held that the trust was enforceable.

     

    It seems their Lordships took a wider view of fraud, namely, failing to give effect to the testator’s wishes, which the secret trustee has promised to carry out. This  would apply equally to full and half secret trusts. The House of Lords also took the view that the trust was outside (dehors) the will and thus outside the ambit of the Wills Act.

     

    Viscount Sumner said

     

     

     

    “It is communication of the purpose to the legatee, coupled with acquiescence or promise on his part, that removes the matter from the provision of the Wills Act and brings it within the law of trusts.”

     

     

     

    He also said that equity

     

     

     

    “makes him do what the will in itself has nothing to do with”.

     

     

     

    However, he also made reference, obiter, to limits, namely that a testator should  not be able to give the go-by to the requirements of the Wills Act because he did not choose to comply with them:

     

     

     

    “A testator cannot reserve to himself a power of making future  unwitnessed dispositions by merely naming a trustee and leaving the purposes of the trust to be supplied afterwards”.

     

     

     

    These obiter comments have been picked up in subsequent cases and used to support the view that, in the case of half secret trusts, communication of the trust and its terms must take place before or contemporaneously with the execution of the  will (contrast fully secret trusts, which are valid provided

     

     

     

     

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    communication takes place before death, whether it occurs before or after

    the will).

     

    This difference in the communication rules between fully and half secret trusts is hard to justify and has been criticised. It is suggested that the courts may have  been (inappropriately) influenced by the rules for incorporating documents into the will by reference, simply because the trust is mentioned on the face of the will.

     

    Note that the details of what must be communicated are the same for a half secret trust as for a fully secret trust (see above).

     

     

     

    6.5.1              Consistency with the will is essential

     

    In Re Keen [1937] Ch 236, property was left to two people to dispose of “as may be notified by me to them” or either of them “during my lifetime”.

     

    A sealed envelope containing the terms of the trust was given to one of the trustees before the will was executed.

     

    The Court of Appeal held that the trust failed because:

    a)  the will referred to a future communication, which was inconsistent with a communication already made, so the trust would fail for inconsistency with the will;

    b)  there  was  a  reference  to  future  communication,  which  was  not permissible.

     

     

     

    6.5.2              Communication  must take place before or contemporaneously with the execution of the will

     

    In Re Keen (above), the court referred to obiter statements in the speeches in  Blackwell v Blackwell and went on to hold that, in half secret trusts, communication cannot take place after the will. Lord Wright MR said that this “would   involve  a  power  to  change  a  testamentary  disposition  by  an unexecuted codicil and would violate s 9 of the Wills Act”.

     

    The  requirement  that  communication  should  occur  no  later  than  the execution  of  the  will  has  been much criticised but  Re  Keen has  been followed.

     

    In Re Bateman’s Will Trusts [1970] 1 WLR 1463, the testator’s will stated that income was to be paid “to such persons and in such proportions as shall be stated by me in a sealed letter . . . addressed to my trustees.” The court held that the trust was invalid. Pennycuick V-C said that the words:

     

     

     

    “import that the testator may, in the future, after the date of the will, give a sealed envelope to his trustees. It is impossible to confine the words to a sealed letter already so given. If that is the true construction of the wording, it is not in dispute that the direction is invalid . . . as an attempt to dispose of the estate by a non-testamentary instrument.”

     

     

     

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    It would seem from this that, whenever the trust is communicated, it will fail if the will allows for future communication.

     

     

     

     

     

    6.6      Secret trustee as witness to will

     

     

    s 15 Wills Act 1837 provides that a witness to a will cannot benefit under it. If a half-secret trustee were to witness the will, that should not defeat the trust as the will shows that he is a trustee and s 15 provides that any benefit to a witness is void.

     

    It is less clear what the position would be if a fully secret trustee were to witness the will. As it appears as an outright gift, it could be argued that he loses the gift and no trust property will come to him. It is submitted that, as he does not take the legacy beneficially, s 15 Wills Act should not defeat the trust.

     

     

     

     

     

    6.7      Death of, or disclaimer by, trustee

     

     

    It has not been settled whether a secret trustee may disclaim the legacy and thereby  defeat the trust. It was said obiter in the Court of Appeal in Re Maddock  [1902]  2 Ch 220 (which concerned a fully secret trust) that the trust will fail if the secret trustee predeceases the testator or disclaims the gift. (In the case of an ordinary gift by will to a person who predeceases the testator, the gift normally lapses ie fails.)

     

    However, in Blackwell v Blackwell (which concerned a half secret trust), it was said, also obiter, in the House of Lords that the trustee of a fully secret trust will not be allowed to defeat the testator’s purpose by renouncing the legacy. The latter view seems right in principle.

     

    It is also arguable that, since the trustee of a half secret trust is a trustee on the face of the will, if he predeceased the testator, the principle that equity will not permit a trust to fail for want of a trustee might be applied.

     

     

     

     

     

    6.8      Justification for enforcing secret trusts

     

     

    If the courts are to recognise trusts that do not comply with the Wills Act, they must find some justification for ignoring the requirements of that statute. The courts have come up with two main theories, although neither is entirely satisfactory.

    1.  the ‘fraud theory’

    This is based on the saying that “equity will not permit a statute to be used as an instrument for fraud”.

     

     

     

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    It is clearly possible for an intended trustee fraudulently to keep the property, where there is nothing in the will to indicate that he holds on trust. Equity, however, will not permit him to use the requirements of the Wills Act to keep the property, but will ensure that he holds it on trust: McCormick v Grogan (1869) LR 4 HL 82.

    Prevention of fraud was the original justification for enforcing secret trusts.  However, this theory is less convincing in justifying half secret trusts since the half secret trustee appears as a trustee on the face of the will and, thus, cannot take beneficially.

     

     

    More recently, the courts have found justification in:

     

    2.  the ‘dehors the will theory’

    Blackwell  v  Blackwell  [1929]  AC  318  suggests  that  secret  trusts operate outside (dehors) the will and are therefore not subject to the Wills Act. It would appear that communication and acceptance create the trust inter vivos. The will does not create the trust, it is merely the device for constituting it by transferring the property to the trustees. The trust is thus ‘dehors’ or outside the will.

    This theory, however, leaves problems unresolved. If it is correct, it would  seem to apply to both fully and half secret trusts, which makes something of a nonsense of the differing requirements in respect of the timing of communication (see above)

    The following cases lend support to the theory:

    Re Gardner (No  2)  [1923] 2  Ch  230,  where the  secret beneficiary predeceased the testator. The normal rule is that a gift under a will lapses (fails) if the beneficiary predeceases.

    The court held that the beneficiary’s interest arose as soon as the trusts were  communicated  and  accepted,  as  the  interest  was  created  by agreement, not by the will. Accordingly, the beneficiary’s share did not lapse.

    This decision is regarded as dubious because, until the testator’s death, the trust is incompletely constituted.

    In Re  Young [1951] Ch  344, a  secret trust benefited the  testator’s chauffeur, who had witnessed the will. S 15 Wills Act provides that a witness to a will cannot benefit under that will.

     

     

    The  court  held  that  the  chauffeur  was  entitled  under  an  oral  trust declared inter vivos. Danckwerts J said:

     

     

     

    “a beneficiary under a secret trust does not take under the will, and …

    he is not, therefore, affected by s15 of the Wills Act 1837”.

     

     

     

    He was, therefore, entitled to benefit.

     

     

     

     

     

     

     

     

     

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    6.9      Express or constructive?

     

     

    It is  unclear  whether  secret  trusts  are  express  or  constructive.  This  is important because, if they are express, a secret trust relating to land would seemingly  require  evidence  in  writing  to  comply  with  s53(1)(b)  Law  of Property  Act  1925.  If  they  are  constructive,  then  s53(2)  removes  the necessity for formality.

     

    Ottaway v Norman (above) concerned a fully secret trust of a bungalow, which the court enforced although it was oral, but the issue of s53(1)(b) was not pleaded and was not considered by the court.

     

    Re Baillie (1886) 2 TLR 660 suggested that a half secret trust of land was not  enforceable without written evidence (although this case was decided before the validity of half secret trusts was firmly established in Blackwell v Blackwell).

     

    For a fully secret trust, if prevention of fraud is the basis for enforcement, the trust   is,   arguably,   constructive.  There   is   some   support   for   this   in Kasperbauer v Griffith [2000] WTLR 333, where the Court of Appeal took the view that a  constructive trust would be imposed to compel a secret trustee to hold trust property as had been agreed with the testator. However, as no trust was found in that case, this is only obiter dicta.

     

    It is more difficult to think of half secret trusts as constructive, since they are referred to in the will and so would seem to be express.

     

    It has been argued by Paul Todd that secret and half secret trusts depend on a principle of equity which, if not defeated by s 9 Wills Act 1837, will not be  defeated  by  s  53 Law  of  Property Act  1925 or  any other provision intended to prevent fraud, irrespective of whether the trusts are express or constructive.

     

     

     

     

     

    6.10 Secret Trusts in a Modern Context

     

     

     

    It may seem from the case law that secret trusts belong to a bygone age, but they do have a modern relevance.  For example, in Davies v HMRC [2009] UKFTT 138 (TC), on the death of Mrs Goodman, her estate was assessed by HMRC as chargeable to Inheritance Tax.  Her daughters argued that part of the estate was not chargeable as it had been given to Mrs Goodman on their father’s death on  fully secret trust, and thus did not form part of her estate.   The judge  acknowledged that in principle a secret trust could be imposed in such  circumstances, but found that in this particular case, no duties of trusteeship had been imposed upon Mrs Goodman. She may have wanted to benefit her  daughters, but this did not arise from any legally enforceable secret trust arrangement.                                         For a further example of a modern use of the secret trust, see Gold v Hill [1999] 1 FLR 54 in your Casebook.

     

     

     

     

    m

     

    Materials for question 5

     

     

     

     

     

     

     

     

     

     

    Tracing

     

     

     

     

     

     

    Learning Outcomes

     

     

    By the end of this chapter you should understand:

    1.  the concept of tracing and its uses;

    2.  the advantages of proprietary claims;

    3.  tracing at common law and its limitations;

    4.  tracing in equity and its limitations;

    5.  tracing into mixed and unmixed funds;

    6.  personal claims arising from tracing.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

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    18.1  Introduction

     

     

    18.1.1            What is tracing?

     

    Tracing is a process by which property can be identified in the hands of recipients or substitute assets.                           It is particularly useful in the commercial sphere in the context of misapplication of company funds, where tracing can help to identify what has happened to the funds and into whose hands they have passed. However, tracing is also useful where money has been paid over to a recipient  by mistake or where assets have accidentally become mixed and it is important to remember that the process of tracing does not require showing fault by the parties through whose hands you trace.

     

    Tracing is neither a right nor a remedy, but a means by which property rights can be identified and, as a result, remedies awarded:

     

     

     

    “Tracing is neither a claim nor a remedy but a process.  It is the process by which the plaintiff traces what has happened to his  property, identifies the persons who have handled it or received it,  and justifies his claim that the money  which  they  handled  or   received  can  properly  be  regarded  as representing his property.” Per Millett LJ in Boscawen v Bajwa [1995] 4 All ER

    769

     

     

     

    Tracing is often used as a generic term to describe two processes – following and tracing:

     

    Following is the process of identifying the same asset as it moves from person to person.

     

    Tracing is the process of identifying a new asset as the substitute for the original.   In Taylor v Plumer (1815) 3 M. & S. 562, a client gave money to his stockbroker, Walsh to invest.  Walsh purchased bullion and investments with the  money and was caught making off to America with them.  It was held that the  client could claim the bullion and investments.                                                                                    On Walsh’s bankruptcy, his assignees in bankruptcy sought to recover them from the defendant client. They failed. Lord Ellenborough held:

     

     

     

    “It makes no difference in reason or law into what other form, different from the original, the change may have been made, whether it be into that of promissory notes for the security of the money which was  produced by the sale of the goods or the principal as in Scott v Surman (1742) or into other merchandise, as in Whitecomb v Jacob(1710) for the product of or substitute for the original thing still follows the nature of the thing itself, as long as it can be ascertained to be such.. .“

     

     

     

     

     

     

     

     

     

     

     

     

     

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    18.1.2            Remedies awarded as a result of tracing

     

    At Common Law

     

    1.  Proprietary remedy of restoration

    Historically, common law only provided an action for specific recovery of land  not  chattels,  so  only  rarely  has  tracing  at  common  law  led  to  a proprietary  claim. One example is the case of Taylor v Plumer (above), where the owner  was himself able to recover his property by seizing it. Another is Jones (FC) & Sons v Jones [1997] Ch 159.

     

    2.  Personal remedy of restitution

    The most usual remedy at common law is a personal claim against the recipient for the value of the property he has received.

     

    In the  case  of  money, the  action will  be for money had and received. According to Millett J in Agip (Africa) Ltd v Jackson [1990] Ch 265:

     

     

     

    “Tracing at common law … serves an evidential purpose. The cause of action is for money had and received. Tracing at common law enables the defendant to be identified as the recipient of the plaintiff’s money  and the measure of his liability to be determined by the amount of the plaintiff’s money he is shown to have received.”

     

     

     

    For further details, see 18.2 below.

     

     

     

    In Equity

     

    1.  Equitable ownership

    The Court will recognise that the claimant is the equitable owner of the property.  The claimant can therefore claim the property itself or, where their money has been mixed with another’s and the mixture used to purchase a new asset, a proportion of it.

     

    2.  Equitable charge or lien

    A charge will be imposed on the property which enables the claimant to recover the value of his money that went into the property, but not to claim ownership of the asset itself.

     

    3.  Subrogation

    Where the  claimant’s money is  used  to  discharge a  secured  debt, the claimant is allowed to ‘stand in the shoes’ of the creditor, and gain the benefit of the creditor’s charge (see 18.3 below).

     

    These are all proprietary remedies.

     

     

     

     

     

     

     

     

     

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    4.  Personal Remedy

    There may also be personal remedies against the recipients of the property

    (see 18.4 below).

     

     

     

    18.1.2            Advantages of a Proprietary Remedy

     

    1.  Priority over general creditors on insolvency

    A personal claim operates against the person rather than attaching to any particular  asset  in  the  defendant’s  hands.                                   It  therefore  relies  on  the defendant having sufficient funds to meet the claim. If the defendant is insolvent, a claimant with a personal remedy will take his place with the other creditors and will only receive a percentage of the sum he is awarded. A proprietary  claim, however, gives a right to or over particular property itself.  This property will not go into the general pool to be shared amongst the creditors, ensuring that  the claim can be met even if the defendant is insolvent.

     

    2.  Benefit from any increases in value of the property traced

    As a proprietary claim gives a right to or over particular property, it can entitle the claimant to any increase in the value of that property.  See 18.3.4 and 18.3.5 below.

     

    3.  No statutory limitation period

    Under The Limitation Act 1980, a personal claim must be brought within 6 years.   This does not apply to a proprietary remedy, although the equitable doctrine of laches, sometimes known as delay, does apply.

     

     

     

     

     

    18.2  Tracing at Common Law

     

     

    On this course, we are mainly concerned with tracing and claiming in equity. However,  it  is  important for context and for what you will encounter in practice to be aware of the rules at common law.  In addition, the common law defence of  ‘change of position’ would now seem to apply to personal claims in equity, so it is important to understand this defence.

     

     

     

    18.2.1            Limitations to tracing at common law

     

    1.  Claimant must have legal title

    Only a person with legal title can use the common law rules, so a beneficiary under  a  trust cannot trace and claim at law. However, a beneficiary may compel his trustee to do so where property has fallen into the hands of a third party (and may even join the trustee as a defendant to such an action). This will not be possible  where the trustee is the one responsible for the misapplication of the property, as is commonly the case in these situations.

     

     

     

     

     

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    2.  Property must be identifiable

    Property can be traced at common law as long as the means of identifying it still  exist. This is straightforward where the property being traced is the original asset, but becomes difficult where the property has changed form, eg  by  being  substituted or  exchanged for  other  property or  mixed  with something else.

     

    It is no objection if the original property has been substituted for other property  provided the property or its product has at all times remained identifiable:

     

    eg where money was used to buy investments and bullion: Taylor v Plumer (1819) 3 M&S 562, or has been paid into a separate bank account: Banque Belge pour L’Etranger v Hambrouck [1921] 1 KB 321.

     

    In  Banque  Belge,  Hambrouck  fraudulently  obtained  cheques  from  his employer, who held an account with Banque Belge, the plaintiff. Hambrouck paid  the  cheques into his own bank account. Banque Belge honoured the cheques by paying money to Hambrouck’s bank which credited that money to Hambrouck’s account. Hambrouck drew cheques on his account in favour of Mlle Spanoghe, his mistress, who paid them into her own account.

     

    It was held that the plaintiff could trace and claim its money because it had at all times remained identifiable, as no other sums had been paid into the account.

     

    Mixing appears to cause greater problems.

     

    With regards to tangible property, some cases have permitted tracing into the  mixture, awarding claimants a proportion of the mixture as tenants in common.   See Indian Oil Co Ltd v Greenstone Shipping SA (Panama) [1988] QB 345.

     

    With regards to money, although Lipkin Gorman v Karpnale Ltd [1991] 2

    AC 548 (see below) suggests that money can be traced into a bank account where it has been mixed with other money, money cannot be traced through a mixed bank  account, as illustrated by Agip (Africa) Ltd v Jackson.  In Agip, the claimant  was  defrauded by his chief accountant in Nigeria who had changed the names on payment orders. The claimant was attempting to

    trace money transferred to the defendants. It was held that money could not

    be traced at  common law  through the New York clearing bank system because  it  had  became  mixed  with  other  money  in  the  system.                         This reasoning has been criticised, but it remains undisputed that there is no mechanism for tracing payments out of a mixed bank account at common law.

     

    3.  Tracing at common law usually only leads to a personal claim

    The inability of the common law to trace through mixed funds, coupled with the  fact  that, historically, common law only provided an action for specific recovery of  land and not chattels, means that tracing at common law only rarely leads to a proprietary claim in the true sense.

     

     

     

     

     

     

     

    245

     

    Tracing at common law is therefore often simply the means of identifying what has happened to the claimant’s property and generally leads only to a personal claim for the value of that property against the recipient.

     

    In the case of chattels, common law tracing is the process whereby the owner of a chattel seeks to identify his chattel in an action for conversion.

     

    In the case of money, unless the actual coins or notes can be identified, the claimant must use the action for money had and received.  Here the tracing process is used to identify the defendant as having received the claimant’s money.  The  claimant  then  seeks  to  recover  an  equivalent  sum  via  a personal claim.

     

    In Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548, Cass, a crooked partner of the appellant firm of solicitors (A), unknown to his fellow partners, stole over £300,000 from the firm’s client account which he used to fund his gambling addiction at the Playboy Club, owned by the respondent company (R).

     

    Cass bought  chips  for  gambling at  the  Playboy  Club.  It  was  accepted throughout that R acted in good faith and did not know that the money was stolen. However, at that time, a gaming agreement was then void under the Gaming Act  1845 and accordingly it was held that R gave no valuable consideration for the money used to purchase the chips and R was therefore an innocent volunteer. (This reasoning has been criticised – see McKendrick (1992) 5 MLR 372.)

     

    The House of Lords allowed A’s claim to the money. It is to be noted that the mixing of the stolen money in the hands of Cass did not defeat the action against Karpnale Ltd. For reasons which are not apparent from the reported case, the  respondent conceded that if the appellants could establish legal title to the money in the hands of Cass, that title would not be defeated by the mixing.

     

    The House of Lords found that the appellants had legal title, not to the money,  but  to  the  chose  in  action  (ie  debt  owed  by  the  bank  to  the appellants). Title to this chose in action could be traced into its product, ie money.

     

    The defendant’s knowledge is irrelevant, as liability is not dependent on fault.  However, it is necessary to show that the defendant was unjustly enriched: per Lord Templeman in Lipkin Gorman v Karpnale Ltd.

     

     

     

    “… in a claim for money had and received by a thief, the plantiff victim must show that money belonging to him was paid by the thief to the defendant and that the defendant was unjustly enriched and remained unjustly enriched … an innocent recipient of stolen money will be enriched if the recipient has not given full consideration”.

     

     

     

    Because these actions are personal and not proprietary, the defendant is still liable to repay the value of the property he received even if he no longer has it (or  has mixed it with his own): Agip (Africa) Ltd v Jackson and Lipkin Gorman v Karpnale Ltd [1991] 2 AC 548.

     

     

     

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    18.2.2            The defence of change of position

     

    However, in Lipkin Gorman v Karpnale, the House of Lords allowed R the defence of change of position. Acting in good faith, R had paid certain substantial  sums  to  Cass  representing  his  “winnings”  at  gambling.  R’s liability to A was reduced by the amount of Cass’s “winnings”. Lord Goff said that

     

     

     

    “where an innocent defendant’s position is so changed that he will  suffer an injustice if called upon to repay or to repay in full, the injustice of requiring him so to repay outweighs the injustice of  denying the plaintiff restitution. If the plaintiff  pays  money  to  the  defendant  under  a  mistake  of  fact,  and  the defendant then, acting in good faith, pays the money or part of it to charity, it is unjust to require the defendant to make restitution to the extent that he has so changed his position.”

     

     

     

    Requirements for the change of position defence

     

    Lord Goff  required two  things  for  the  recipient’s  actions  to  count  as  a relevant change of position:

    1.  Expenditure by the recipient in reliance on the payment he had received, so that the recipient was ‘disenriched’.

    2.  That the expenditure was extraordinary, in the sense that it would not have been incurred but for receipt of the claimant’s funds.

     

     

    Disenrichment

     

    Subsequent case  law  has  attempted  to  expand  on  this  definition  of  a qualifying change.                     In Commerzbank AG v Gareth Price-Jones [2003] EWCA Civ 1663, the defendant banker attempted to use change of position as a defence to an action by his employer bank for return of a bonus they had paid  twice by mistake.  The defendant had not spent the additional bonus yet, and so could not be said to have been ‘disenriched’ as required by Lord Goff, but  argued that he had believed the second payment was intended to increase his entitlement in recognition of his services, and that this had induced him not to seek higher remuneration elsewhere.

     

    The Court of Appeal did not accept that this was a relevant change of position, as the defendant had not done anything sufficiently significant or substantial in reliance on the receipt.                                                      However, the Court kept open the possibility that a relevant change of position could arise even where, as here, no expenditure had been incurred.  Munby J in particular emphasised that the  defence was not restricted to cases of disenrichment, although it has not been applied outside this context yet.

     

    Extra-ordinary expenditure

     

    Lord Goff in Lipkin Gorman v Karpnale held

     

     

     

    “the mere fact that the defendant has spent the money, in whole or  in part, does not of itself render it inequitable that he should be called upon to repay,

     

     

     

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    because the expenditure might in any event have been incurred by him in the ordinary course of things.”

     

     

     

    In Scottish Equitable plc v Derby [2001] 3 All ER 818, the Court of Appeal held that the payment of debts cannot normally be relied on as a change of position, as the defendant had to pay them anyway.

     

    However, the availability of the defence does not depend upon the assets bought                and     subsequently      consumed     having     any     extraordinary characteristics in themselves. In Philip Collins Ltd v Davis [2000] 3 All ER

    808, two backing musicians to Phil Collins were overpaid royalties from the sale  of  records.  They  used  this  money  to  supplement  their  everyday standard of  living. Jonathan Parker J held the change of position defence could apply as although the assets acquired were of an everyday nature to the defendants, the  amount they had acquired and the expense they had consequently incurred was extraordinary.

     

     

     

    A key limitation to this defence

     

    While stating that nothing should be said to inhibit the development of the defence, Lord Goff in Lipkin Gorman Karpnale made it clear at 580 that

     

     

     

    “the defence is not open to one who has changed his position in bad faith …

    the defence should not be open to a wrongdoer”

     

     

     

    He gave as an example of bad faith a defendant who had paid away the money, with knowledge of the facts entitling the claimant to restitution. This was expanded upon by Moore-Bick J in Niru Battery Manufacturing Co v Milestone Trading (No 1) [2002] 2 All ER (Comm) 705, where he held at [135]

     

     

     

    “I do not think that it is desirable to attempt to define the limits of good faith; it is a broad concept, the definition of which, insofar as it is capable of definition at all, will have to be worked out through the cases. In my view it is capable of embracing a failure to act in a commercially acceptable way and sharp practice of a kind that falls short of outright dishonesty as well as dishonesty itself. The factors  which will determine whether it is inequitable to allow the claimant  to obtain restitution in a case of mistaken payment will vary from case to case, but where the payee has voluntarily parted with the money much is likely to depend on the circumstances in which he did so and the extent of his knowledge about how the payment came to be made. “

     

     

     

    18.2.3            Summary

     

    1.  Tracing at common law is only possible where the person trying to trace holds legal title to the property.

    2.  Where the property is still identifiable, tracing at common law may lead to a proprietary claim.

     

     

     

     

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    3.  Where the property has been mixed so that it is no longer identifiable, tracing at common will at best only lead to a personal claim to recover the value that has been received.

    4.  This personal claim is not fault based but will be subject to the defence of change of position, where appropriate.

     

     

     

     

     

    18.3  Tracing in Equity

     

     

    18.3.1            Requirements for tracing in equity

     

    The Court of Appeal Re Diplock [1948] Ch 465 held in there to be two pre- requisites to tracing in equity:

    1.  A fiduciary relationship

    2.  An equitable proprietary interest in the property being traced.

     

     

    Re Diplock was a continuation of the litigation which began in Chichester Diocesan Fund and Board of Finance (Inc) v Simpson [1944] AC 341. Mr Diplock, by his will, left the residue of his estate (over £250,000) “for such charitable institution or institutions or other charitable or benevolent object or objects”  as  his  executors  might  select.  The  executors  distributed  over

    £203,000 among 139 charities before the next of kin challenged the validity of this bequest.

     

    It was held that this bequest was invalid because it was not exclusively charitable and the gift therefore failed as a purpose trust, being void for uncertainty. Consequently, the next of kin were entitled to the estate on Mr Diplock’s intestacy.

     

    In Re Diplock [1948] Ch 465, the next of kin sued the executors and also the charities themselves for the return of the money. The action against the executors   was  compromised  with  the  court’s  approval,  the  executors agreeing to repay  £15,000 of the £203,000 out of their own pockets. The next of kin sought to recover the balance from the charities concerned.

     

    The right to trace and make a proprietary claim in equity was considered at length by the Court of Appeal in Re Diplock, in case their decision on the availability of  a  personal claim (see later) was reversed by the House of Lords. However, the House of Lords affirmed their decision on the personal claim and did not consider it necessary to discuss the proprietary claim.

     

     

     

    The fiduciary relationship

     

    This requirement was approved by the House of Lords in Westdeutsche Landesbank Girozentrale v Islington London BC [1996], but has been much criticised.  In Foskett v McKeown [2000] Lord Millet said, obiter, that there was no logical justification for insisting on a fiduciary relationship.

     

     

     

     

     

     

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    The  fiduciary  relationship  need  not  be  between  the  claimant  and  the defendant.  The Court of Appeal in Re Diplock held that the claimant must show that there is a fiduciary relationship between himself and the defendant or  between  himself  and  a  person  who  transferred  the  property  to  the defendant.   In  Re  Diplock,  the  fiduciary  relationship was  between  the claimant and the executors and the action was against the charities to which they had handed the money.

     

    The remedy is not confined to claims between trustee and beneficiary, but to other fiduciaries, eg that of solicitor and client Re Hallett’s Estate (1880) 13

    ChD 696 and accountant and employer in Agip v Jackson (above).

     

    Fiduciary relationships have been found very easily in circumstances where tracing is sought:

     

    Lord  Templeman  in  Lipkin  Gorman  v  Karpnale  Ltd  approved  the Australian case of Black v Freedman (1910) 12 CLR 105, where it was said that a thief holds stolen money on trust for the true owner and that the true owner may therefore trace in equity into a mixed fund.

     

    Similarly, in Chase Manhattan Bank v Israel-British Bank (London) Ltd [1981] Ch 105, Goulding J held that a person who paid money to another under a mistake of fact retained an equitable interest and the conscience of the payee was  subjected to a fiduciary duty to respect that interest.   The decision in Chase  Manhattan was discussed in the House of Lords in Westdeutsche, where the judge’s reasoning was doubted. The Israel-British Bank held the additional  $2,000,000 on constructive trust when it knew of the mistake made by Chase  Manhattan. Lord Browne-Wilkinson said that mere receipt gave rise to no trust but the retention of the moneys after the receiving  bank  learned  of  the  mistake  “may  well  have  given  rise  to  a constructive trust” which allowed a claim in equity.

     

     

     

    The equitable proprietary interest

     

    This requirement has also been criticised, but again, is very easily found.  In Re  Diplock  the  “equitable  proprietary  interest”  was  established  by  the equitable   claim  the  claimants  (next-of-kin)  had  against  the  executors, despite the fact that a person named as a beneficiary in a will is not normally regarded as the equitable owner of assets in the unadministered estate.

     

    Following the imposition of trusts in the examples above, there will also be an equitable proprietary interest in these cases.

     

     

     

    18.3.2            Into whose hands can property be traced?

     

    1.  It can be traced into the hands of the person who misapplied it.

    2.  It  can  be  traced  into  the  hands  of  a  person  who  received  it  with knowledge that it was misapplied.  This will lead to a proprietary claim and a personal action (see 18.4 below and Chapter 19 for further details on personal claims).

     

     

     

     

     

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    3.  It can also be traced into the hands of an innocent volunteer, that is a person  who is given the property without providing consideration and who has no knowledge of the property’s provenance (Re Diplock).

    4.  Property cannot be traced into the hands of a bone fide purchaser for value without notice.  According to dicta in Lipkin Gorman v Karpnale Ltd, the consideration given by the purchaser need not be adequate.

     

     

     

    18.3.3            The property must be identifiable.

     

    Property can only be traced if it is identifiable.  If it has been dissipated, e.g. spent on food, drink or a holiday, it will no longer be identifiable and cannot be  traced.           Similarly  money  paid  into  an  overdrawn  bank  account (Bishopsgate Investment Management v Homan [1995] Ch 211) or spent paying off other  unsecured debts (as in Re Diplock) cannot be traced. Money spent paying a  secured debt may be traced into the charge (see

    18.3.8 on subrogation for further details).

     

     

     

    18.3.4            Tracing into unmixed funds

     

    If trust property has been kept separate, it can be reclaimed.

     

    If it has been sold, the beneficiaries can trace into and claim the proceeds of sale.

     

    If the  wrongdoer  has  used  trust  funds  to  purchase  other  property,  the claimant has a choice of remedies.  In Re Hallett’s Estate (1880) 13 Ch D

    696, it was held that the claimant may elect either to take the property or to have a charge over the property for the amount of his money expended in its purchase.  If  the  property  has  appreciated,  the  claimant  would  be  best advised to take the  property, but if it has depreciated, he would be best advised to have a charge over the property and sue the defendant for the

    balance.

     

     

     

    18.3.5            Tracing into mixed funds

     

    Claimant’s property mixed with the trustee’s own property

     

    Where trust  money  or  property  has  been  mixed  with  other  funds,  the beneficiaries have the right to an equitable charge (or lien) over the mixture, to secure their claim. So much is clear from Re Hallett’s Estate (1880) 13

    Ch D 696. This case seemed to state that, where the defendant mixed the claimant’s funds with his own in the purchase of a property, the claimant’s only  option was a charge over that property to recover the amount of his money  (or  funds) expended on  the  purchase, plus  interest.  This  would produce a  favourable result where the property depreciated, entitling the claimant to  recover  as much of his money as possible and making the defendant suffer  the  depreciation. But if the property increased in value, restricting the claimant to a charge would prevent him from benefitting from that increase.

     

     

     

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    However, Ungoed-Thomas J in Re Tilley’s WT [1967] Ch 1179 interpreted the above statement of the law to mean that a plaintiff does have the right to “claim a proportion of the property corresponding to his own contribution to its purchase.” He went on to say obiter at 1182 that “the beneficiary will be entitled to every  portion of the blended property which the trustee cannot prove to be his own”.

     

    This issue was resolved unequivocally by the House of Lords in Foskett v

    McKeown [2000] 2 WLR 1299.

     

    The House of Lords held that the claimants were entitled to the rise in value of their share of the premiums.  Claimants in such circumstances have the same choice of remedy as with unmixed property. Lord Millet said:

     

     

     

    “Where a trustee wrongfully uses trust money to provide part of the  cost of acquiring an asset, the beneficiary is entitled at his option  either to claim a proportionate share of the asset or to enforce a  lien upon it to secure his personal claim against the trustee for the amount of the misapplied money.’

     

     

     

    Claimant’s property mixed with that of another trust fund or with the property of an innocent volunteer

     

    Where the trustee has mixed the funds of two or more trusts, according to Re Diplock, the two trusts must share the funds rateably (or pari passu, as it is often  put  in these cases.) For example, trust A’s ‘contribution’ to the mixed fund was £6,000 and trust B’s was £2,000.  Only £4,000 is left in the fund, the remaining money having been dissipated.  As trust A ‘contributed’ three quarters of the mixed fund, it is entitled to claim £3,000 from the fund and trust B  is  entitled to one quarter, ie £1,000.              There is no option of claiming an equitable charge on the fund here, as that would prefer one party’s claim at the expense of the other. Where both parties are innocent victims of the mixing, this would be inappropriate.

     

    The same rule applies where the funds of an innocent volunteer (sometimes referred  to as an innocent contributor in such circumstances) have been mixed with funds belonging to a trust.  This is whether the mixing was done by  the  trustee  or  the  other  contributor  himself  –  Re  Diplock.                                                                                        So,  for example, if the trustee wrongly gives £6,000 of Trust A’s money to his son, an  innocent volunteer, and the son buys property with that £6,000 and

    £2,000 of his own money, the property will be owned three quarters by the Trust  A  and one quarter by the son.   If the property goes down in value, Trust A will  not be able to claim an equitable charge for £6,000, as that would prejudice the son’s claim.

     

    This was reiterated by Lord Millett obiter in Foskett v McKeown, who stated that the primary rule in regard to a mixed fund is that gains and losses are borne by the contributors rateably:

     

     

     

    “Where  the  beneficiary’s  claim  is  in  competition  with  the  claims  of  other innocent contributors, there is no basis upon which any of the claims can be subordinated to any of the others. Where the fund is deficient, the beneficiary is

     

     

     

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    not entitled to enforce a lien for his contribution; all must share rateably in the fund.”

     

     

     

    Claimant’s property  mixed  with  an  innocent  volunteer’s pre-owned asset

     

    The situation is different where an innocent volunteer spends the claimant’s money on an asset which he already owns.

     

    In cases where no value is added to the asset, the claimant’s money is treated as dissipated and cannot be traced.  In Re Diplock the court gave the example of an innocent volunteer who spent trust money in altering his house to his personal needs without adding one penny to its value.

     

    In cases where value is added to the asset, Lord Browne-Wilkinson said obiter  in  Foskett v McKeown that the trust would not be entitled to a proportion of the value of the asset but ‘at most a proprietary lien’ over the asset.

     

    Furthermore the innocent volunteer may have a defence to the claim if it would be inequitable to enforce it (see below).

     

     

     

    18.3.6            Subrogation

     

    Subrogation means being in another’s place – stepping into another party’s shoes.

     

    It is a principle widely used in insurance law.  If an insurer pays out on an insurance policy, and it then appears that the insured could make good his loss by getting money from elsewhere e.g. by suing the person who caused his  loss,  the  insurer  can  recover  that  money.                                                                He  does  this  by  being subrogated to the position of the insured and suing the person who caused the loss directly.

     

    However, this is a distinct type of subrogation specifically entitled reviving subrogation.                        Where   a   secured   debt    is    paid    off   with    the   use    of misappropriated assets, subrogation allows the debt to be ‘revived’ in favour of the party whose money was used to pay off the original secured debt.

     

    In Boscawen v Bajwa [1995] 4 All ER 769, the simplified facts were that Mr Bajwa  had  entered  into  a  contract  to  sell  his  house.  The  house  was mortgaged to  the Halifax Building Society. The contract, unknown to the parties, failed to comply with s2 Law of Property (Miscellaneous Provisions) Act 1989 and so was void.

     

    The purchaser sought a loan from Abbey National, which paid the loan money to the purchaser’s solicitors. As a result of a muddle between them and Mr Bajwa’s solicitors, this money was paid over to the Halifax Building Society before  the transfer of title to the purchaser was completed. The Halifax used the  money  to discharge its mortgage. The transfer was not completed and the sale fell through.

     

     

     

     

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    Abbey National sought to trace its money and have a charge over the property by way of subrogation to the Halifax Building Society; that is, Abbey National wished to step into the shoes of the Halifax and have a charge over Mr Bajwa’s house. The Court of Appeal allowed this, holding that the charge had not been redeemed for Mr Bajwa’s benefit.

     

    Thus where the claimant’s money has been used to pay off secured debts, he may be subrogated to the position of the creditor and be given a charge over the  property. However, it is important to realise that the terms of the revived mortgage can be no more favourable to the claimant than the terms of the original mortgage were to the original lender.

     

    In  Re  Diplock  this  remedy  was  defeated  on  the  grounds  that  it  was inequitable in the circumstances (see below).

     

     

     

    18.3.7            Payments  in   and  out   of   bank  accounts:  the position between the claimant and the trustee

     

    Where the claimant’s money is paid into the wrongdoer’s bank account and mixed with the wrongdoer’s money, the claimant has an equitable charge on the bank account for the amount of money paid in – Re Hallett’s Estate.

     

    Unlike at common law, money can be traced through such an account. Denning MR in CC of Kent v V [1983] QB 34) referring to the cases of Taylor v Plumer and Re Hallett’s Estate said

     

     

     

    “In 1815 the common law halted outside the banker’s door, by 1879 equity had the courage to lift the latch, walk in and examine the books.”

     

     

     

    However, when payments are made out of a mixed bank account, it must be determined whose money is being used to make them.

     

     

     

    The Rule in Re Hallett’s Estate

     

    In Re Hallett’s Estate, Hallett was a solicitor who had been entrusted by Mrs  Cotterill with money for investment. He mixed her money in a bank account with  his own money and money from a trust of which he was a trustee. He died and there was insufficient money to meet his personal debts and to repay Mrs Cotterill and the beneficiaries under the trust.

     

    The Court of Appeal held that both the trust and Mrs Cotterill were entitled to charges  on  the  bank  account  and  that  any  withdrawals from  the  bank account must be treated as payments of Hallett’s own money and not of Mrs Cotterill’s or the trust. The balance in the account was sufficient to meet the claims of Mrs Cotterill and the trust.

     

    Jessel MR said that the reason for this rule, which presumes that the trustee is  spending his own money first, is that wherever an act “can be done

     

     

     

     

     

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    rightfully, [a man] is not allowed to say, against the person entitled to the property or the right, that he has done it wrongfully.”

     

    So, when the trustee spends part of the fund and dissipates it (so that it is untraceable), he is taken to spend his own money first. He cannot claim that he   spent  trust  funds  and  retained  his  own  funds.  Accordingly,  the beneficiaries   may  claim  the  funds  remaining,  up  to  the  limit  of  their entitlement.

     

     

     

    The Rule in Re Oatway

     

    In Re Oatway [1903] 2 Ch 356, it was held that the general principal is that the trustee is presumed to have acted so as to preserve the trust fund. He is estopped from asserting that he has dissipated the trust money before his own.  Therefore if  the trustee purchases property from a bank account containing his own money and trust funds and then dissipates the rest of the money in the account, the beneficiaries can claim the property purchased as against the trustee.   In this case the trustee mixed trust money with his own money and then bought some shares,  still leaving enough money in the account to repay the trust fund. He then dissipated the rest of the money in the account.  The court held that the beneficiaries were entitled to a charge on the shares (which were worth more than  their purchase price but less than the trust money paid into the account).

     

    In other words, in such circumstances, the rule in Re Hallett’s Estate does not apply.

     

     

     

    Can a claimant claim property bought with earlier payments out of the bank  account when there are still sufficient funds in the account to repay him?

     

    Where property bought with earlier payments out of the bank account has gone up in value, it would be to the claimant’s advantage to trace his money into this property rather than simply claiming his money in the account.  It is not clear whether he is allowed to do so when there is enough money in the account.

     

    The House of Lords left this open in Foskett v McKeown:

     

     

     

    “It is not necessary to consider whether there are any circumstances in which the beneficiary is confined to a lien in cases where the  fund is more than sufficient to repay the contributions of all parties.” Per Lord Millett

     

     

     

    In  Shalson  v  Russo  [2003]  WTLR  1165,  it  was  a  suggested  that  a beneficiary may be able to claim earlier payments as coming from his own money  rather than the trustee’s.   It was said that the beneficiary may be allowed to ‘cherry pick’ if the only contest is between the beneficiary and the wrongdoer, to avoid the wrongdoer being left with all the cherries.

     

     

     

     

     

     

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    In Turner v Jacob [2006] EWHC 1317, the High Court did not allow a beneficiary to chose an earlier payment out when there was still money in the trustee’s bank account to satisfy the beneficiary’s claim.

     

    In this case a husband gave £75,000 to his estranged wife to pay off the mortgage of a property on the basis that she would give the property to her daughter.  She did not do this.  The judge held that the £75,000 was held on trust for  the daughter.  The mother then dissipated all but £10,339 of this money, but that amount was still held on trust for the daughter.  The mother put more money into her account as an attempt to remedy the breach that had taken place, but that money could not replace the dissipated money as per Roscoe v Winder (see below).  The mother then bought two properties with the money she had taken  from  the account, which went up in value. She died and left the residue of her estate, including what was in the bank account, to her daughter. The daughter wanted to trace her £10,399 into the second property.  She was not allowed to do so because £10,399 was still available in the account.

     

    The exact ambit of when the courts will allow claimant to use cherry picking as suggested by Shalson v Russo and the scenario where the claimant will have to  start by tracing their money from the bank account is at present unclear. Despite some loose academic comments regarding rejecting Patten J’s comments in Turner, it is submitted that both principles are correct. More specifically, in Turner the claimant was attempting to use the tracing rules not only to get the money in the account but also to trace into the properties that  were  bought.  In  essence,  she  was  trying  to  double  recover.  By restricting  her  to  tracing  into  the  account,   this  double  recovery  was prevented. Meanwhile, in Shalson the assets of the  claimant had been appropriated by a wrongdoer, who had ultimately dissipated large amounts of the mixed fund. In this sort of scenario it makes sense for the innocent party to be able to claim the wrongdoer used their own assets on  these dissipations  as  far  as  possible.  This  dovetails  with  the  general  rule  of evidence  in  Armory  v  Delamirie  (1722)  1  Stra  505  that  evidential uncertainty created by wrongdoing will be resolved against the wrongdoer.

     

    Therefore a  potential means  through  which  both  cases  can  reasonably operate  is  as  follows.  Where  there  is  a  claim  being  made  against  a wrongdoer  cherry  picking  seems  to  be  available.  However,  where  the competing claim is against an innocent third party who has used the assets in a  profitable way, the starting point for the claimant is to trace into the money left in  the account as opposed to cynically attempting to claim the whole of the profits  of  the favourable transaction the innocent third party undertook.

     

    The lowest intermediate balance rule – Roscoe v Winder

     

    If the wrongdoer spends the claimant’s money and then pays in money of his own, this money is not deemed to be a repayment to the claimant.

     

    In Roscoe v Winder [1913] 1 Ch 62, the plaintiffs sold their business to Mr Wigham and it was agreed that he should collect in certain debts on their behalf. He did this and paid £450 into his account. He then withdrew money from the account leaving £26. Later, he died leaving £360 in the account.

     

     

     

     

     

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    The court held that the plaintiffs’ proprietary claim over the account was limited to the lowest intermediate balance of £26.

     

    Sargant J said that later payments into the account would only be presumed to be repayments to the trust where the trustee shows such an intention and he gave the example of the trustee repaying money into a separate account opened for the trust.

     

    If the account is exhausted during the intermediate period, the beneficiaries cannot  trace at  all.  This was the  conclusion of  the  Court  of  Appeal in Bishopsgate  Investment  Management  Ltd  v  Homan  [1995]  Ch  211, which affirmed and  applied Roscoe v Winder. The principle in Roscoe v Winder was also applied in Re Goldcorp Exchange Ltd [1995] AC 74.

     

     

     

    18.3.8            Payments  in   and  out   of   bank  accounts:  the position between the claimant and another trust or the claimant and an innocent volunteer

     

    The rules described above for mixing between the claimant’s money and the wrongdoer’s own money do not apply where the claimant’s money is mixed with  either another trust fund or the money of an innocent volunteer.   To discover  which rules apply in such instances, it will first be necessary to ascertain  whether  the account is a deposit account or an active current account.

     

    Deposit accounts

     

    The general rule is that the two funds share the mixture in the account rateably: Re Diplock’s Estate, applying Sinclair v Brougham [1914] AC

    348.

     

    Payments out of the account will also be shared rateably. For example, if trust A’s contribution to the mixed fund was £6,000 and trust B’s was £2,000 and £4,000 is withdrawn to buy a car, Trust A will own three quarters of the car and trust B will own one quarter.

     

     

     

    Active current bank accounts

     

    There is a different rule for payments out of active running accounts – most typically current accounts. Here the rule in Re Clayton’s Case (1816) 1 Mer

    572 applies.  This rule states that the first payment in to the account will be the first payment out.  The rule has been applied as between two trusts and between a trust and an innocent contributor, eg in Re Diplock.

     

    The rule in Clayton’s Case originated to regulate relations between banker and  customer and  its  appropriateness in  the  present context  has  been doubted.   However, more recently, the Court of Appeal in Barlow Clowes International Ltd v Vaughan [1992] 4 All ER 22 has reluctantly confirmed that the rule is still good law, although subject to any contrary intention. The rationale  for  this,  as  explained  by  Dillon  LJ,  is  that  the  rule  has  been

     

     

     

     

     

    257

     

    enshrined in English law for so long that it can only be replaced by a House of Lords (presumably now a Supreme Court) judgment.

     

    The case concerned the collapse of the Barlow Clowes investment company in Gibraltar.  Investors had paid into investment plans, but the money had been stolen and the company was left owing £115m with assets of far less than that.        Some investors argued that the rules in Re Clayton’s Case should be applied.   This would mean that the later investors would recover nearly all their money, and the earlier investors, nothing.

     

    Woolf LJ held:

     

     

     

    “The rule need only be applied when it is convenient to do so and  when its application can be said to do broad justice having regard to the nature of the competing claims.  It is not applied if this is the intention or presumed intention of the beneficiaries.  The rule is sensibly not applied when the costs of applying it is likely to exhaust the fund available for the beneficiaries.”

     

     

     

    On the  facts  of  the case  it  was decided that  the  investment fund was regarded by the investors as a common pool, and that they should share rateably  in  what  remained  because  they  had  experienced  a  common misfortune. Accordingly, the court ordered a rateable distribution among the claimants who were investors. See also Russell-Cooke Trust Co v Prentis [2002] EWHC 2227 involving another pooled investment scheme.

     

    Therefore it can be said that the rule should not be applied if:

    (i)  it was contrary to the express or implied intentions of the claimants; (ii)  it was impractical; or

    (iii) it would cause injustice.

     

     

    Further  cases  which  have  doubted  the  application  of  Clayton’s  Case include  Commerzbank  Aktiengesellschaft  v  IMB  Morgan  plc  [2004] EWHC  2771  (Ch)  where  misappropriated  assets  were  sent  through  a banking clearing  house and Re Ahmed & Co (a firm) [2006] EWHC 480 (Ch)  in  which  innocent  parties’  money  was  mixed  in  a  solicitor’s client account. However, it must be  noted that both cases are mere High Court authority decided by the same judge, Lawrence Collins J (as he then was) and that all the cases that have doubted the use of Clayton’s Case have involved some form of commercial transaction.  These  cases are therefore distinguishable from that of a typical family trust. In  that latter situation, according to Re Diplock, as confirmed by Barlow Clowes v Vaughan, the rule in Clayton’s Case must still be considered good law unless overruled by a higher authority.

     

    For example, if a trustee pays into a current account £5,000 from trust A, then £3,000 from trust B and then withdraws £4,000 from the account, he is taken to have spent £4,000 of trust A’s money. So trust A may trace into the account and claim only up to the limit of £1,000 (£5,000 – £4,000), whereas trust B may recover the full £3,000 it is treated as still owning.

     

    Note that, although the rule in Clayton’s Case applies to a claim between two  (or  more)  trusts  and  to  a  claim  between  a  trust  and  an  innocent

     

     

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    contributor (Re Diplock and, obiter, in Re Hallett’s Estate), it does not apply as between beneficiaries and the trustee who has mixed trust funds with funds of his own (Re Hallett’s Estate).

     

     

     

    Examples:

     

    1. A trustee pays £3,000 of Trust X’s money into his current account which was previously empty.  He then pays in £2,000 of his own money and then

    £5,000 of Trust Y’s money.  He withdraws £2,000 and dissipates it.  He then withdraws £3,000 and dissipates that money as well.  There is £5,000 left in the account.

     

    First look at the situation between the trustee and the trust funds.        Re Hallett’s Estate will apply so the first payment out will be the trustee’s own money.

     

    Then look at the situation between the two trust funds.       It is a current account, so, according to Re Diplock, the rule in Clayton’s Case applies. The first payment in was from Trust X, so the first payment out is Trust X’s money. Trust Y can claim the £5,000 left in the bank account.

     

    2. A trustee has £2,000 of his own money in his deposit account.  He puts in

    £3,000 of Trust B’s money and then £6,000 of Trust C’s money.  He spends

    £6,000 on shares which are now worth £12,000.     He then dissipates the remaining £5,000. Later he pays in £1,000.

     

    First look at the situation between the trustee and the trust funds and apply Re Oatway as the later funds are dissipated.  This means the £6,000 spent on shares will all be money from the two trusts rather than the trustee’s own money. Then  look  at the situation between the two trusts.                                                            They share rateably (Re Diplock), so Trust B has 1/3rd  of the shares (now worth £4,000) and  Trust C has 2/3rd   of the shares (now worth £8,000).                                                The dissipated money includes £2,000 from the trustee’s money, £1,000 from Trust B and

    £2,000 from Trust C.    This trust money cannot be replaced by the later payment in of £1,000 (Roscoe v Winder).

     

     

     

    18.3.9            Loss of right to trace and claim in equity

     

    1.  Inequitable

    A proprietary claim may not be allowed if it is inequitable.  In Re Diplock’s Estate the charity, a hospital, had spent the money improving its own pre- owned property.  The next- of-kin’s interest in the property would have been a charge, enforceable by sale.  The Court of Appeal did not allow this on the grounds that it would have been inequitable to force a sale.

     

    However, in Foskett v McKeown there were dicta to the effect that as proprietary remedies are enforcing proprietary rights they should not be discretionary:

     

     

     

    “property rights are not discretionary, but are determined by fixed  rules and settled principles.”  Per Lord Millett

     

     

     

    259

     

    “this case does not depend on whether it is fair, just and reasonable to give the purchasers an interest as a result of which the court in its discretion provides a remedy.  It is a case of hardnosed property rights.”  Per Lord Browne-Wilkinson

     

     

     

    Lord Millett stated that the only defence to an equitable proprietary claim is a bona fide purchase of the legal estate for value without notice.                      However, Lord Browne-Wilkinson cited Re Diplock and said that where money had been  spent  on  the  pre-owned  asset  of  an  innocent  recipient,  then  a proprietary   lien  would  not  be  allowed  over  that  asset  if  it  would  be inequitable.

     

    In Re Diplock, the Court of Appeal also allowed the defence to a claim for subrogation resulting from the hospital using the claimants’ money to repay a   mortgage  which  the  mortgagee  would  have  been  happy  to  leave outstanding indefinitely.  It has been argued that this was too lenient on the hospital  and  it  should  just  have  been  given  more  time  to  find  another mortgage.  Millett  L.J. in Boscawen v Bajwa said the decision should be confined to its facts:

     

     

     

    “It may be doubted whether in its anxiety to avoid injustice to the hospital the court may not have done an even greater injustice to the next of kin, who were denied even the interest on their money.”  Per Millett LJ

     

     

     

    There is a strong argument for saying that an innocent recipient spending money  on a pre-owned asset is the only instance when there may be a defence of inequitability.  Even in that situation, the defence may not always be available.  Goff and Jones (The Law of Restitution 6th ed, p111) give the example of the volunteer being a rich banker who spends the trust money to increase the value of his house and has ample liquid assets to discharge the subsequent charge over his house, arguing that it would not be inequitable to allow the charge in that case.

     

    Inequitability could be seen as the proprietary equivalent of the defence of change of position from Lipkin Gorman v Karpnale.  (In that case it was suggested, obiter, that such a defence could also apply to personal and proprietary remedies in equity. In light of the later case of Foskett, it is doubtful that this is so. Lord Millet has clearly stated extra-judicially in Equity in Commercial Law (eds S. Degeling and J. Edelman) (2005) at pp 315 and

    325 that change of position is not a defence to a proprietary claim.)

     

    2.  Bone fide purchaser for value without notice

    See 18.3.2 above.

    3.  The Property is not identifiable.

    See 18.3.3 above.

     

     

     

     

     

     

     

     

     

     

     

     

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    18.4  The personal actions in Equity

     

     

     

    18.4.1            No general personal action against recipients

     

    While at common law there will always be a restitutionary personal action against the recipient of the claimant’s property, this is not the case in equity. There  will  be   no  personal  action  against  an  innocent  volunteer  (Re Montagu’s Settlement [1987] 1CH 264).  A personal action will only arise against a recipient whose  knowledge of the provenance of the property would make it unconscionable for  him to retain it.        Bank of Credit and Commerce International v Akindele [2001] Ch 437 (see Chapter 19).

     

     

     

    18.4.2            The personal action in Re Diplock

     

    The Court of Appeal in Re Diplock held that, where money is wrongly paid out in the administration of an estate, a personal action is available against those who received the money.  This was affirmed by the House of Lords on appeal where the case became Ministry of Health v Simpson [1951] AC

    251.  As a result, the next of kin were able to use the personal action to recover the balance of the Diplock money (£203,000 less £15,000 paid by the  executors  from  their  own  pockets)  from  the  charities  even  where proprietary claims were not possible.

     

    The Court of Appeal stated that this remedy is subject to two limitations:

    1.  The unpaid beneficiaries should firstly sue the personal representative who has acted wrongly, the beneficiaries’ personal claim against those overpaid, or wrongly paid, being limited to the amount which cannot be recovered from the personal representative.

    2.  The entitlement is to claim the principal sum only, not the interest on it.

     

     

    In Re Diplock, which was affirmed by Ministry of Health v Simpson, no defence was allowed to the personal claim.  However since then the House of Lords has developed the defence of change of position in Lipkin Gorman v  Karpnale  and  it  is  generally  accepted  that  this  defence  would  be applicable to such a claim

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    LAND ACQUISATION ACT

    Prepare a report to:  explain how to tell which of these two laws should be used for a particular compulsory land acquisition. Compare and contrast the similarities and differences in the areas of acquisition procedures and compensation in these two laws…………………….

     

    Land acquisition is a way of  availing land in the market for purposes of development(Omar and Ismail,2009,pp.121-134).The land acquisition Act of 1989 and the land acquisition Act of 1991 are two legal Acts that were enacted by the government of Australia in order to govern the public and private land rights in the country. The two Acts have been used by authority when acquiring private land by force or through agreement for the public use. This paper will compare the two Acts in terms of their similarities and differences when it comes to land acquisition and compensation by the authority.

    WHERE ARE ACTS USED

    THE LAND ACQUISATION ACT OF 1989

    This Act is used mostly when the government is considering the compulsory acquisition of the land for public use. The Act has special provision for public land acquisition for the purpose of public park .According to this Act any disposal and acquisition of property interest must be authorized by this Act.  The act stipulate that the property can be acquired through various methods which include negotiated agreement, purchase where the property is bought in an open market, and finally through compulsory acquisition. These provisions are also found in the land acquisition act of 1894 from which this act has been developed. According to this act, minister must authorize any compulsory acquisition of the property and compensation will also be paid under similar authorization. The disposal of the property must also be authorized by the minister. All authorities are governed by this Act except the following; an incorporated society, association or company, a trustee body or politic body. Other authorities can also be partially excluded from this act using the legislations that enables them. Section 4(17), gives the interests in the land which may include the following; a state, common wealth interest or crown land territory; an interest that was not existence there before in a given land; land use restriction or even  gross easement. According to this act, land can either acquired by agreement or by compulsory process. The following are procedures for compulsory acquisition process.

    • Making declaration of pre-acquisition as under section 5.
    • Review or reconsideration of declaration of pre-acquisition.
    • Making a declaration of acquisition as under section 6.

    LAND ACQUISATION ACT OF 1991

    The Act was enacted on July 1, 1991 and it revoked all the regulations that were previously made by the LAA 1969. According to section 4 of this Act, land or interests in land may be acquired by the compulsory process by the state authority. The state authority may refer to the  crown minister, any statutory body that may be acting on the interest of the crown, county council or other authority that  may be allowed to compulsory acquire land. The authority may acquire land by compulsory process as provided by this act or by any other provision provided by the 1912 public work act.  This act provides procedures for acquisition of the land and also for compensation of the land to the owner of the land. According to these procedures the state is not supposed to acquire land unless any delay in doing so will cause the owner of the land to experience some hardship. This hardship comes in when the owner of the land will not be in a position to sell the land at its market value because of the plan of the authority to acquire land for public purpose. The hardship may also comes  in when the owner of the land is not in a position to sell it due to his pressing domestic or other personal needs.

     

             Thompson v Randwick Corporation (1950) 81 CLR 87

                In the above case the Randwick municipality is accused by the plaintiff for acquiring more land from the plaintiff than required. The municipal council had previously planned to acquire land for expansion of the road in the Randwick municipality. However, it took more land than required and hence intended to sell excess land after the project in order to reduce their costs of acquisition. The plaintiff moved to court in order to stop the council to sell excess land accusing council for acquiring more land than required. The court ruled in favour of the plaintiff arguing that the council was not supposed to acquire more land than necessary.

    Minister for Public Works (NSW) v Duggan (1951) 83 CLR 824

    This is an example of a legal case that applies the LAA of 1991. The ministry had acquired more land than it required for public use. According to LAA 1991, the acquiring authority is not supposed to acquire more land than it really required for public use. The ministry in this case lost the case against Duggan for going against the provision for LAA 1991 which define all the conditions for partial and total acquisition.

     

    Parramatta City Council v Mac’s Pty Ltd [2008] NSW CA 132

                In this case the court considered the power of the council to be in a position to acquire land for use in the urban renewal project. In its ruling the court found that the city council had powers to acquire several plots that were used for construction of residential towers and offices. This is was in line with the LAA of 1991 which gives the city council power to acquire land for public use.

    JR & EG Richards (NSW) Pty Ltd v Scone Shire Council & Anor [1995] NSW LEC 200

    This is another case where the court was required to rule whether the Scone Council had the right to acquire land of the plaintiff. In his ruling, the judge argued that the council had the responsibility to develop civic places and  in doing so it had the right to acquire private land for that purpose so long as it pay the required compensation. This is in line with the LAA of 1991.

    Under this act, value to the owner principle is applied when compensating an individual for the land which has been acquired by the authority for public use. This is based on the market value of the interest or land which have been acquired (Hyam, 2009; Brown, 2009). The compensation also includes consequential loss, severance loss and other type of loss that the owner of the land may have suffered due to the acquisition of the land by the state for the public use.

    SIMILARITIES AND DIFFERENCES

    The main aim of two Acts is to compensate the party whose land has been taken. These act clauses are mainly meant to return the person who has lost his or her land to the authority to similar or same position as before. The Just Acquisition land act of 1991 mainly looks at the compensation terms that are fair to the parties who are involved in the exchange. This act is different from the 1989 land acquisition Act which deals with many other issues and not just the compensation of the acquired land, For instance, property in land and mortgages and interest for mortgages. Just compensation terms, looks the willingness of the both parties to trade or not to trade in their exchange. One of the issues that are addressed by just compensation terms is the willingness of the owner of the land to trade which it is argued by many that, compulsory acquisition does not consider the willingness of the land owner to trade the land with the acquiring authority. On the other hand, the 1989 LAA does not go that extent of addressing the terms of exchange though it addresses the process of compensation.

    The LAA of 1991 also addresses the difference between the person who was willing to let his or her land go for ransom compensation and a person whose land was acquired by the authority but he was not will to give it in exchange for compensation. This difference between the compensation of the two parties is not addressed by the LAA of 1989. Just term compensation also addresses the difference between the procedures for partial acquisition and total acquisition. These include valuation methods such as piece meal method. The LAA of 1989 does not go to this far to address the difference between the two types of acquisition.

    Another major difference between the two Acts is in their jurisdiction. The LAA of 1989 apply in the common wealth while the LAA of 1991 applies in the New South Wales.

    The two acts give procedures for acquisition of the land and also stipulate the terms of compensating the owner of the land. The law requires that the authority intending to acquire the land to give a notice of acquisition of the land within a reasonable time to the owner of the land. The owner of the land may also object the acquisition of the land by the acquiring authority if he or she has the legal reasons to oppose the acquisition of the land. The LAA 1991 is applied mostly in cases that deal with mortgage and their compensation where the owner of the acquired property receives compensation for the property that has been acquired by the authority. The acts provide all the procedures and provisions for the compensation of mortgage interest which has resulted from the acquisition. The act also provides the procedures for determining how the compensation will be calculated. This is also provided by other acts such as land acquisition act of 1986 and Just Terms of Compensation Act of 2009. This procedures may include provision of advance payment, account for compensation among other procedures for compensation. The act is applied in cases that involve determination of compensation that result from the acquisition. The LAA of 1991 is also applied in the same case since it is used in many legal cases that involve determination of the compensation. However, it is called (just term compensation) as it addresses the general issues of compensation. It provide terms that are both fair to the owner of the land well as the acquiring authority. It ensures that the terms that are used in the determination of the compensation are fair to both parties and no party receives higher compensation than it deserve. This is made possible by the provisions of this act that are applied in the court of law when judges are determining cases that involve compulsory land acquisition.

    According to Graeme et al (2011, pp.210-219), most of the land cases that involves compulsory land acquisition were successful. They argue that the rate of success in those cases was about 91 percent for the last 20 years.

    COMPARISON OF THE PROCEDURES FOR ACQUISATION

    The two acts states the procedures for land acquisition which must be followed by the acquiring authority in order to acquire land either through compulsory or through agreement with the owner of the land. First, the acts define the authorities which have rights to acquire land for public use.  These authorities include the crown minister, county council or any other body that may be acting on behalf of the state. According to the two acts, the acquiring authority must notify the owner of the land their intention to acquire the land in reasonable time and give the reasons why they intend to acquire the land.  In both acts the acquiring authority must also give the notice of compensation and   the value of that compensation on to the owner of the land. The two acts also define the interest in the land to be acquired which may include equitable or legal estates or the land interest.

    Under both act, the acquiring authority is given powers to enter the land temporary before the acquisition in order to establish the suitability of the land to be acquired. This will allow the acquiring authority to obtain all the necessary information concerning the land intended to be acquired. The authority may enter to the land with other experts who may be required to access the land such as the surveyors. However, the authority intending to acquire the land must give notice for such entry to the owner of the land before entering into the land. The LAA 1989 also allow the acquiring authority to temporarily acquire the land if the situation demands it to do so. For instance if the land acquired is neighboring the authority land where public work is going on, the authority  may temporarily acquire that land for the purpose of public work. However, the authority acquiring the land must also give notice to the owner of the land within reasonable time to ensure that there is least inconvenience caused by that acquisition.

    Most of the procedures that are followed in both acts when acquiring land are similar.  Both acts require the acquiring authority of to start with declaration for pre-acquisition, followed by review or reconsideration of the declaration for pre-acquisition and the declaration for acquisition. Declaration for pre-acquisition in both Acts requires the acquiring authority to give a notice to owner of the land to show their intention to acquire the land. Both acts also require that acquisition of the land to be done within the shortest and practicable time as possible. The procedures also require the acquiring authority to notify the owner of the land of any amendment or withdrawal of the acquisitions notice. The pre-acquisition procedures also require that the acquiring authority to notify the register general of such intended acquisition. In the declaration for acquisition the two acts requires the compulsory acquisition and the effects of such declaration to be made in Gazette.

    Again the two acts give minister powers to act on behalf of the state as authorizing authority for compulsory land acquisition. According to both act, no land can be acquired by force or even through agreement without authorization of the minister. The acts require the party with interest in the land to give particulars of the mortgages to the minister. According to the LAA of 1991, the party who has interest in the mortgage is required to give all details concerning that mortgage. These details may include name, descriptions and address of the mortgage, the principal amount of the mortgage, amount of costs, interest and charges. These details must be provided to the minister on time if the person will qualify in his or her claim of the land interest.

    CONCLUSION

    Several cases have been filed in different law courts in Australia more so accusing different authorities for violating the LAA of 1989 and the LAA of 1991. These legal cases involve several issues that are related to acquisition such as compensation of the acquired land, the size to be acquired and many other issues related to acquisition of land. Hence, it is important to know which Act is appropriate in a given legal case that involves land acquisition.

    The two acts are applied in almost similar cases but not in all situations any of the acts may be applicable. The two acts provide legal procedures that need to be used in the acquisition of the land either by agreement or through compulsory acquisition. They also provide procedures for compensation once the acquisition has been done. The two acts provide methods of determining the amount of compensation that should be paid to the owner of the land. However, LAA of 1989, provide more clauses on the compensation for mortgages which have been acquired by the state as well as the calculation of interest from these mortgages.  The LAA of 1991 looks more on the compensation of land which has been acquired and methods for calculating the compensation. In both acts the minister of the crown is given power to allow any acquisition and compensation of the land. No acquisition and compensation can proceed without the permission of the minister. The compensation of the property is also allowed by the minister where the person to be compensated is required to provide the necessary details for the compensation. The minister will then determine for instance whether the owner of the property qualify to be compensated even the interest which has accumulated from the property which has been acquired. These provisions are provided in the two acts of land acquisition and compensation. The acts apply in most of the cases together apart from few land cases.

    REFERENCES

    Brown, D. (2009), Land Acquisition, LexisNexis Butterworths, London,

    Graeme Newell, Nelson Chan, Evan Goodridge, (2011) “Risk assessment and compensation analysis of court decisions in compulsory land acquisition compensation cases in Australia”, Journal of Property Investment & Finance, Vol. 29 Iss: 2, pp.210 – 219

    Hyam, A. (2009), The Law Affecting Valuation of Land in Australia, Federation Press, Annandal.

    Mangioni, Vince (n.d) Just Terms Compensation And The Compulsory Acquisition Of Land Refereed Paper. University of Technology, Sydney. Retrieved on April 5,2011.http://www.prres.net/papers/Mangioni_Just_Terms_Compensation_And_The_Compulsory.pdf

    Omar, Ismail; Ismail, Mazlan, 2009. The economic of landacquisition – using kotaka’s model in land acquisition to provide land for infrastructure development in Malaysia. Annals of the University of Petrosani Economics, Vol. 9 Issue 4, p121-134.

    LEGAL CASES

     JR & EG Richards (NSW) Pty Ltd v Scone Shire Council & Anor [1995] NSW LEC 200

    Minister for Public Works (NSW) v Duggan (1951) 83 CLR 824

    Parramatta City Council v Mac’s Pty Ltd [2008] NSW CA 132

    Thompson v Randwick Corporation (1950)81 CLR 87

     

    LEGAL ACTS

    LAND ACQUISATION ACT OF 1969

    LAND ACQUISITION (JUST TERMS COMPENSATION) ACT 1991. New South Wales Consolidated Acts.

    LAND ACQUISITION (JUST TERMS COMPENSATION) ACT 2009.

    LANDS ACQUISITION ACT 1989. Act No. 15 of 1989 as amended

    LANDS ACQUISITION AND COMPENSATION OF 1986

    THE LAND ACQUISATION ACT OF 1894

     

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    Economic activity in the global

    Account for the power of trade marks (and the brands that they signify) to attract customers to marked products and explain how his power has contributed to the evolution of brand-based marketing as a distinct form of economic activity in the global econo………………

    INTRODUCTION

    Many companies are using trade mark to give them a competitive advantage in the market. Customers tend to associate the product they like with their trade mark. Products with reputable image are always associated with their trade mark when the consumers intend to distinguish these goods from similar and identical goods from other companies. This study will focus on the power of trade mark and the company are using it to attract and retain their customers.

    BACKGROUND

    Kohli and Labahn argue that a product with a strong brand name will easily influence the choice of the consumer[1]. All the players in competitive economies seek to improve or maintain their position in the market. In order to do so, the players’ uses trade mark as one of their tools of outdoing their rivals in the market. The player has to look for ways to make his or her good stand out to the buyers in the market.  The players in the market use a symbol that is legally protected to be associated with their products.[2] Marinov notes that increased competition in the market has quickened national governments to intervene and enact some regulations that will that there is health competition in the market[3]. Competition pressure has made some companies to fake the product name and trade mark for rival companies that have good reputation in the market in order to gain competitive advantage.  This has led to many legal cases as the trade mark owner accuses other companies for using or faking his trade mark.[4]  Trade mark policies have also been established in many countries to be used both domestically and internationally in to protect trade mark of different companies.[5] For instance in UK there is UK trade mark laws while in US there is Lanham Act.[6] Brand names are legally protected by trade mark laws.[7] Higgins and Verma argue that these policies are enacted in order to prevent infringement of the trade mark[8]. This argument is also supported by Anna and Hahn who argues that proper guidelines on the intellectual property will reduces cases of infringement[9]. According to WIPO[10] all companies are required to register their logo, name, slogan, colour, domain name and shape. This is supported by Suzanne who argues that trade mark protects exclusive rights of the owners[11]. This will ensure that registered trade marks are protected by the law even when other marks that look alike may be used to confuse the customers.  However, the company registering the trade mark has to show that their mark is distinct from other marks that have been registered. Trade mark laws ensure the rights of both traders and competitors are protected.[12]

    POWER OF TRADEMARKS

    Trade mark is a powerful tool that can be used to protect the brand name or the product of a given company. Trade mark help in identifying the source of the goods or even services like the company name, the product name and the brand name.[13] According to Brigham , trade mark of brand is all about who owns what[14]. Trade mark law ensure that only the owner of the trade mark has the right to use it. Trade marks are nowadays valuable and important assets of the company. Trade mark of different company has immeasurable value that cannot be equated with other assets of the company.  Customers have developed brand loyalty and always associate a given symbol with that product they like. Trade mark is used to represent reputation of the company. Reputation of the company is very important especially in a competitive economy since good reputation will give a company a competitive advantage. This view is supported by Fataneh et al who argue intellectual property can give company a competitive advantage[15]. According to Ingrida, a good reputation will contribute greatly the competitive advantage of the company.[16] Company reputation will always be associated with its brand and as Smith et al notes; there is a positive relationship between corporate performance and a positive reputation[17]. Companies that have good reputation or image in public always report positive results.  Thus many companies would like to associate their brands with trade mark of these companies in order to take advantage of the reputation of the registered trade mark. This will leads to trade mark infringement which is punishable in the court of the law. Given the economic benefits that are associated with good brand image, companies can do anything possible in order to build their brand image. This is done through marketing managers who carry out product promotion.

    Trade mark enables one company to distinguish its products with the products of competitors in the market.[18] Consumers can only differentiate the products of one company with similar products from other companies using trade mark.  If the company does not have a distinguished trade mark, it will be difficult for its consumers to identify its goods with other identical goods in the market. For instance it is difficult for consumers to distinguish between the products of pepsi and Coca-Cola. The consumer can only know that the bottle is not filled with Pepsi but Coca-Cola by using the red sign used by the coca cola company. Through the use of trade mark, consumers will be in a position to tell the source of the product. This is supported by Beth who argues that trade mark is the primary tool that is used to distinguish goods from different companies[19].

    It is very important for each company to guard its brand name or logo once the consumers begin associating its product with it. Hall argues that intellectual property is just like any other assets of the company since they are protected by the law[20] .If the company fails to protect its brand name or logo, other companies may copy the logo of the company and use it to cheat the consumers that they are buying its products. Other companies may reap the benefits of the company success which could not have been achieved with ease. This will decrease the competitive advantage of the company hence lowering its profitability. According to Betsy and James, intangible assets such as good reputation contribute greatly to the performance of the company. [21]Trade mark is used to protect reputation of the company so that company may continue enjoying its brand image in the market. Thus it is important for any company to protect its trade mark.

    TRADE MARK AND CONSUMER BEHAVIOUR

    Marketers have ability to change the psychology of the consumer through the information they communicate to them. Consumer behaviour and perceptions will determine the decision of the consumer when he or she is making a choice between two brands which are similar. The consumer perceptions and behaviour will depend with the information that the consumer have when making a choice between two brands. Thus marketers have the ability to supply consumers with information about different brands that they may rely on when making choices about different brands that are offered in the market. This information may be true or false depending on the intention of the marketer.  Many times consumers have been supplied with wrong information about the products especially where marketers intend to convince the potential customers that their product is the best.  Marketers have also used brand name or trade mark of the reputable brand in order to take advantage of the reputable brand and convince consumers to buy the brand of the marketer.  This has led to many legal cases where many marketers have been accused of supplying consumer with wrong information in order to convince them. The behaviour and perceptions of many consumers have been changed by the information that has been supplied through marketing either true or false about the brand names. Thus it is important for the business to supply their customers with the necessary information that will help them to distinguish goods and services of the company with other similar goods of the rival companies. Good awareness of the brand name of a given company will minimise cases of confusion where consumers are cheated by the marketers about different brand names thus affecting their perceptions and behaviour about products of a given company.  Marketers have ability to use miscommunication in order to change the choice of the consumers now and also in future. The brand loyalty that consumers have towards brands of a given company may change due any miscommunication by the marketers. Thus it is important for a business to use a brand name and trade mark that is easily distinguished from others by their customers in order to avoid such cases of cheating by the marketers. Robert argues that marketers need to supply consumers with real information in order to minimise cases of cheating.[22]

    The success of new product that a company may be planning to introduce in the market will depend so much on the reputations or brand image of the company.  Customers will always tend to associate the new product introduced in the market with the other brands they already know that are offered by the same company. When consumers like goods of a given company, they always think that all the other goods produced by the same company are good. This will make the company to gain competitive advantage even when they introduce new products in the market. This will increase the sales of the company and hence its profitability.

    Intellectual property and more so trade mark play crucial role when it comes to the marketing of the product. Most of the products in the market have competing products that similar, identical and most of the time substitute of the product. Exceeding or meeting the expectations of the customers is a hard task particularly when the preferences and tastes are changing continuously in a market that is competitive. Many products that are similar and identical are developed daily in the market with the intention of meeting different needs. Thus it is only a business that is very competitive that can be in a position to acquire and retain loyal customers for their products.  In order to develop confidence, trust and loyalty, such a business need to develop and also maintain a unique identity, reputation or image. This will enable it to separate its products as well as its image from the rival business. The business also has to come up with mechanisms of linking product provider with other assets of the business that are valuable such as goodwill and trust. This is normally achieved through distinct trade mark and trade name.

    Distinctive trade marks and trade name play an important role in marketing strategy as they differentiate the products of the company with those of other companies.  Again trade marks and trade name will help in the development of long term positive relations with the products’ customers. This comes as the company marketers communicate to the consumers about its products. In marketing a company intend to win customers through several stages which include brand awareness, brand recognition, brand preference and brand insistence. At the final stage the customer is fully convinced about the branded product and he or she is not willing to take the alternative brands and may even pay higher price for that brand.  Brand name and trade mark can be used interchangeably in the marketing to distinguish one product or company from others.  A strong trade mark or brand in the market refers to a successful one in terms of profit margins, market awareness, loyalty and market share.

    Trade mark portfolio are used when company intend to diversify their marketing strategies in order to meet the target of different market segments. It is not usually an easy task to build a strong brand and therefore it is very important for the company intending to use trade mark in marketing to be aware of trade mark laws.

    VALUE CREATION

    The greatest value of the enterprise is not represented by the balance sheet figures but by the value of intangible assets. Though, the value of intangible assets vary from one sector to the other, in many sector, these value is usually more than 50 percent of the total asset value. For instance, most of the international technology company has about 90 percent of their total asset value on the intangible assets. The intangible asset that is dominant also varies from one industry to the other. For instance in the industry of IT, the dominant intangible asset is software intellectual property while in the consumer goods industry, the dominant intangible asset is brand name or trade mark. Thus, the importance of a strong trade mark or brand name to a company cannot be overemphasised. According to Moorthi, brand strength depends with stability, leadership, protection, market among other factors.[23] Trade mark has great ability to generate revenue to the company when it is well protected and maintained. A brand has the power to influence the behaviour and perceptions of the consumers which may shift them to like a particular brand. When the perceptions and behaviour are shifted and they start liking a particular product, revenue will start flowing to the company through higher volumes of sales, price premiums, streams of new earning, and reduced volatility in the streams of earning. Blind tasting is the test that is used to illustrate change in the perceptions and behaviour of the consumers. The choice of an individual between two brands is likely to change when he or she is informed about them in comparison to when he is not informed about them. The brand preference will shift the demand curve thus raising the volumes of sales. Increased consumer loyalty will also enhance security of the future earnings. In addition, brand also has ability to influence the behaviour and the perceptions of the investors, staffs and all the other stakeholders. All these will help to create and increase the value of the enterprise.

    Brands play crucial role in determining the future earning of the business. This is indicated by brand equity which represents the total brand perceptions of the consumers and the anticipated sales. This argument is supported by Park and Srinivasan who argues that consumer view brand equity as the added value to the product that comes with the brand name. [24]Bello and Holbrook adds that brand equity is shown by the willingness of the customer to pay for the product just because of its name. [25]Elliot and Percy argue that as the time goes by, consumers develop a liking to the brand and they always like to associate with it.[26] Rossiter and Percy, notes that liking create brand awareness and recalling among the consumers.[27] According to Ehrenberg et al, this liking will bring the brand in the mind of the consumer when its need arises.[28] Nedungadi argues that brand awareness will make consumers to consider it when they are making purchase decision.[29] MacDonald and Sharp also stipulates that those brands that consumers are familiar with have high chances of being chosen when consumers are making that decision.[30]

     

     

     

    Brand equity changes constantly since it is influenced by advertising or any time the consumers come into contact directly with company’s brand. It is always evaluated when the company intend to forecast future sales. Brand equity is used when a company intending to acquire brand of a given company is accessing the stability of the brand. Brand equity is destroyed when for instance there is poor management of the company. Poor reputation or management of the company will lower the value of the brand now and in future. Brand value can be destroyed gradually or in drastic manner.  The consumers have the power to determine the worth of a given brand and they may lower or raise this value depending with how they are satisfied with goods or services of a given company. The value for brand may change depending with what is happening in the company.  For instance, incoming of new management in a given company may raise the brand worth of a brand that was weak there before. According Shamindra and sharoj, Brand equity is measured by the awareness it evokes among the customers.[31]

    BRAND ANALYSIS

    When evaluating the risk of current earnings associated with a given brand, it is important for the company to consider a number of factors. First, is the brand strong enough to achieve the earnings and the market share which has been forecasted? Secondly, is whether there is change in the product or consumer behaviour that may affect the growth rate of the brand strength in future?  Thirdly, is the brand investment level enough to deliver the forecast sales? Fourthly, is the punching of the brand equal or below its weights? Fifthly, is the brand strong enough to be used in other sections or categories of the market? Finally, what are the opportunities and risks if the architecture of the brand happen to be changed.

    Good management is also necessary in order to build a strong brand. Tao argues that managers have now started realising the value of intellectual property in profit making.[32] In order to build a strong brand, skilful marketing, good customer service and good strategy are necessary.  Internal capability of the company is necessary in order to develop internal branding.  This because building a strong brand requires inspired leadership and also takes a lot of time. Brand value is usually lowered by inadequate brand capability. It is also important for the company intending to acquire another company to consider the brand capability of the targeted company. The targeted company should have equal or stronger brand capability compared to the acquiring company.

    BRAND-BASED MARKETING

    It is difficult to market a given brand if it does not have a distinct logo or symbol that distinguishes it from other similar or identical brand. Brand based marketing strategy mainly focuses on the value or worth of a given brand. Marketing of brands usually cover several areas such as the brand awareness, brand image, brand recognition and brand equity. The main aim of the brand marketing is to create awareness among the potential buyers and also to make them to continue remembering that specific brand name. brand awareness refer to the ability of customer to remember and associate with the name when he or she hear it mentioned somewhere while brand recalling refer to that ability of the consumer to be able to distinguish the brand name from other similar and identical name. These two concepts are very important in the marketing of the product because customers cannot buy the brand they are not aware of its existence or that they may not recall its name. In addition, the brand name must also resonate with the audience especially in this 21st century in order for the audience to associate with it. This will also depend on the easiness of the name for easy name will help in the adoption of the new product as Herbert argues.[33] According to Petty a good brand name can promote the products even before advertisement.[34]

    Again trade mark identification is becoming increasing important in this century, where due to advanced technology customers are bombarded with a lot of information about different brand that are offered by different company. Potential customers are approached with many marketing messages, some through the internet, others through mobile phones, and many more through the media. This is making it difficult for the consumer to know which company offer which services and at what rates thus making a strong brand an important marketing strategy in the competitive economy. Chisnall argues that the success of marketing depend so much on the brand name.[35]

    TRADE MARK AND PLACE OF ORIGIN

    Advance technology and globalisation has enable duplication of goods and services where it has become difficult for the customers to distinguish the original products and the duplicated one.[36] According to Carty[37] and Blatt[38] the rate of counterfeit in the world is more than 1000 percent. Hopkins et al. and Bush et al. notes that counterfeiting goods is considered a crime in many countries such as US and UK, however as Phau et al., 2001; Tom et al., 1998) argues many customer will buy this goods even with the knowledge about them. Trade mark is therefore used to show to indicate the geographical origin of the products.  According to Lusk et al Customers know that a product that come from a specific origin  posses some qualities , reputation or features that are not found in similar goods that come from another geographical origin.[39]  Some goods may have a special appeal that is associated with the geographical origin. According to Koubaa[40]Yasin et al[41] and Jin et al[42]., the origin of the goods has a lot of influence on the performance of the good in the market. This argument is supported by Hui and Zhou  who argues that the brand origin influences the product attitude and behaviours of the customers.[43] Klein et al, notes that customers have a tendency of developing some hostility to goods that come from certain countries thus affecting their product choice.[44] Trade mark is therefore used to distinguish products that originate from one place from all the other goods from different geographical origin. This is very important especially in the international market where similar and identical goods are manufactured in different countries. Though some products have their label attached on them indicating their place of origin, many do not have such label and therefore it become difficult for consumers to differentiate goods from different countries of origin. Trade mark is therefore used by many global companies to help them distinguish their products from the products of the rival companies. For instance, Stephen and James argue that wine producing companies have managed to distinguish their product based on their origin.[45] Many international trade mark laws have also been enacted in order to prevent infringement of trade mark globally. Many companies have also put necessary measures in order to ensure that their trade marks are protected in the global market. These measures include registering their trade mark as required by the international trade mark laws, creating global awareness through advertising in order to enable their customers to distinguish their products with similar products from rival companies among others.[46] According to Thakor and Lavack brand image is always determined by the brand origin.[47]

    Pamela and Angela notes that there is increased counterfeit goods trading both locally and internationally which affect the choice of the consumer.[48]  According to Chaudhry and Walsh[49], Kapferer,[50] and Grossman and Shapiro[51],  counterfeits goods are those goods using other company trade mark or logo in order to gain market advantage. Lofgren argues that counterfeit goods will always cost cheaper than the original goods thus gaining price advantage in the market.[52] According to Bloch et al, consumer will chose counterfeit goods when there is price advantage.[53] Dodge et al notes that this comes about because of economic advantage consumer gets from this choice.[54] This may lead to what Albers-Miller calls consumer misbehaviour where consumers buy illicit goods due the price advantage.[55] Muncy and Vitell used the scale of consumer ethics to show this behaviour.[56] Tom et al notes that some consumers see the quality of counterfeit goods to be equal with that of original goods.[57] According to Cordell et al. buying of counterfeit goods should be taken as crime that is punishable by the law.[58] Messick and Brewer  note that laws that prohibit purchase of counterfeit goods such as trade mark law should be more behavioural and structural in order to address the issue more appropriately.[59] Grabowski and Vernon stipulate that counterfeit goods have also made the major brands to lose their share in the market due to compromised quality by the counterfeited good.[60] Thus it is important for all the countries to reforms their trade mark laws.

    CONCLUSION

    Trade marks have been used as powerful tools in the marketing of goods and services. Customers distinguish similar and identical goods from different companies using trade marks. Since it takes time to build reputation a brand, it is worth for companies to protect their trade marks by registering their trade marks in order to protect the use of those trade marks by rival companies.

     

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    Bello, D.C., Holbrook, M.B. (1995), “Does an absence of brand equity generalize across product classes?”, Journal of Business Research, Vol. 34 No.2, pp.125-31.

    Beth H. Alter, (2010) “Trademark registration can provide financial services companies with valuable benefits”, Journal of Investment Compliance, Vol. 11 Iss: 1, pp.59 – 61

    Betsy D. Gelb, James R. Gregory, (2011) “Brand value: does it belong on the balance sheet?”, Journal of Business Strategy, Vol. 32 Iss: 3, pp.13 – 18

    Blatt, J. (1993), “Battling counterfeit products on the US side of the Pacific Rim”, The International Computer lawyer, Vol. 1 No.13, pp.32-3.

    Bloch, P.H., Bush, R.F., Campbell, L. (1993), “Consumer accomplices in product counterfeiting: a demand-side investigation”, Journal of Consumer Marketing, Vol. 10 No.4, pp.27-36.

    Borden, Neil H. The new trade-mark law. Harvard Business Review, 1947, Vol. 25 Issue 3, p289-305, 17p

    Brazell, Lorna. Chapter 3: Trade marks. Intellectual Property Protection & Enforcement, 7/9/1998, p29-54, 26p

    Brigham, Sybil J. Brandnames (Book). Library Journal, 1982, Vol. 107 Issue 7, p718,

    Bush, R., Bloch, P., Dawson, S. (1989), “Remedies for product counterfeiting”, Business Horizon, January-February, Vol. 32 No.1, pp.59-65.

    Carty, P. (1994), “Fake’s progress”, Accountancy, December, Vol. 114 No.1216, pp.44-6.

    Chaudhry, P.E., Walsh, M.G. (1996), “An assessment of the impact of counterfeiting in international markets: the piracy paradox persists”, Columbia Journal of World Business, Vol. 31 No.3, Fall, pp.34-49.

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    Dodge, H.R., Edwards, E.A., Fullerton, S. (1996), “Consumer transgressions in the marketplace: consumers’ perspectives”, Psychology & Marketing, Vol. 13 No.8, pp.821-35.

    Ehrenberg, A., Barnard, N., Scriver, J. (1997), “Differentiation salience”, Journal of Advertising Research, Vol. 37 No.6, pp.7-14.

    Elliot, R., Percy, L. (2007), Strategic Brand Management, Oxford University Press, New Delhi, .

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    Lusk, J.L., Brown, J., Mark, T., Proseku, I., Thompson, R., Welsh, J. (2006), “Consumer behavior, public policy, and country-of-origin labeling”, Review of Agricultural Economics, Vol. 28 No.2, pp.284-92.

    Ma, Qiang. Well-known trade mark protection probed. Managing Intellectual Property, 2010 IP Focus China, p87-90, 4p

    MacDonald, E., Sharp, B.K. (2000), “Brand awareness effects on consumer decision making for a common, repeat purchase product: a replication”, Journal of Business Research, Vol. 48 No.1, pp.5-15.

    Marinov, Rosen. Competitive Pressure in Transition: A Role for Trade and Competition Policies? Journal of Industry, Competition & Trade, 2010, Vol. 10 Issue 1, p1-31, 31p, 9
    Matthew Howarth. Smells good, looks good – but is it a trade mark?
    Strategic Direction Volume: 23 Issue: 2 2007

    Messick, D.M., Brewer, M.B. (1983), “Solving social dilemmas”, in Wheeler, L., Shaver, P.R. (Eds),Review of Personality and Social Psychology, Sage Publications, Beverly Hills, CA, .

    Moorthi, Y.L.R. (2003), Brand Management: The Indian Context, Vikas Publishing House, New Delhi,

    Muncy, J.A., Vitell, S.J. (1992), “Consumer ethics: an investigation of the ethical beliefs of the final consumer”, Journal of Business Research, Vol. 24 No.4, pp.297-311.

    Nedungadi, P. (1990), “Recall and consumer consideration sets: influencing choice without alerting brand evaluations”, Journal of Consumer Research, Vol. 17 No.3, pp.263-76.

    Pamela S. Norum, Angela Cuno, (2011) “Analysis of the demand for counterfeit goods”, Journal of Fashion Marketing and Management, Vol. 15 Iss: 1, pp.27 – 40

    Park, C.S., Srinivasan, V. (1994), “A survey-based method for measuring and understanding brand equity and its extendibility”, Journal of Marketing Research, Vol. 31 pp.271-88.

    Phau, I., Prendergast, G., Chuen, L.H. (2001), “Profiling brand-piracy-prone consumers: an exploratory study in Hong Kong’s clothing industry”, Journal of Fashion Marketing and Management, Vol. 5 No.1, pp.45-55.

    R.S. Petty. Naming names: trademark strategy and beyond: part one – selecting a brand name. Strategic Direction Volume: 24 Issue: 5 2008

    Rewoldt, Stewart H. ASSIGNMENT OF TRADE-MARKS.  Journal of Marketing, Apr48, Vol. 12 Issue 4, p483-487, 5p

    Robert Guang Tian. The Psychology behind Trademark Infringement and Counterfeiting
    Journal of Product & Brand Management Volume: 17 Issue: 4 2008

    Rossiter, J.R., Percy, L. (1997), Advertising Communication and Promotion Management, McGraw-Hill, New York, NY, .

    Shamindra Nath Sanyal, Saroj Kumar Datta, (2011) “The effect of country of origin on brand equity: an empirical study on generic drugs”, Journal of Product & Brand Management, Vol. 20 Iss: 2, pp.130 – 140

    Šmaižienė, Ingrida.  REVEALING THE VALUE OF CORPORATE REPUTATION FOR INCREASING COMPETITIVENESS.. Economics & Management, 2008, p718-723, 6p,

    Smith, Katherine Taken; Smith, Murphy; Kun Wang. Does brand management of corporate reputation translate into higher market value. Journal of Strategic Marketing, 2010, Vol. 18 Issue 3, p201-221, 21p

    Stephen F. Thode, James M. Maskulka, (1998) “Place-based marketing strategies, brand equity and vineyard valuation”, Journal of Product & Brand Management, Vol. 7 Iss: 5, pp.379 – 399

    Suzanne L. Holcombe .United States Patent and Trademark Office. Reference Reviews Volume: 22 Issue: 7 2008

    Tao, J., Daniele, J., Hummel, E., Goldheim, D., Slowinski, G. (2005), “Developing an effective strategy for managing intellectual assets”, Research Technology Management, Vol. 48 No.1, pp.50-8.

    Tebbey, Nicholas; Gunn, Graeme. The development of trade marks for colours, sounds and scents — safe harbours. Keeping Good Companies (14447614), May2010, Issue 4, p238-240, 3p

    Thakor, M.V., Lavack, M.A. (2003), “Effect of perceived brand associations on consumer perceptions of quality”, Journal of Product & Brand Management, Vol. 12 No.6, pp.394-407

    Tom, G., Garibaldi, B., Zeng, Y., Pilcher, J. (1998), “Consumer demand for counterfeit goods”, Psychology & Marketing, August, Vol. 15 No.5, pp.405-21.

    Welch, John L.; Hammitte, Ann Lamport. MONTHLY DIGEST OF TRADEMARK DECISIONS ISSUED BY THE U. S . PATENT & TRADEMARK OFFICE.  Allen’s Trademark Digest, Apr2011, Vol. 24 Issue 10, p1-52,

    World Intellectual Property Organization (WIPO) (2009), “What is intellectual property?”, World Intellectual Property Organization, available at www.wipo.int/about-ip/en/

    Yasin, N.M., Noor, M.N., Mohamad, O. (2007), “Does image of country-of-origin matter to brand equity?”, Journal of Product & Brand Management, Vol. 16 No.1, pp.38-48.

    Your guide to geographical indications worldwide. Managing Intellectual Property, Nov2008, Issue 184, p42-53, 12p



    [1] Kohli, Chiranjeev; LaBahn, Douglas W. OBSERVATIONS: CREATING EFFECTIVE BRAND NAMES: A STUDY OF THE NAMING PROCESS. Journal of Advertising Research, 1997, Vol. 37 Issue 1, p67-75, 9p,

    2 Aboulian, Lucy; Charnley, Patrick. The Trade Marks (Relative Grounds) Order 2007 and its impact on trade mark owners and applicants. Journal of Brand Management, Nov2007, Vol. 15 Issue 2, p146-149, 4p;

     

     

    [3] Marinov, Rosen. Competitive Pressure in Transition: A Role for Trade and Competition Policies? Journal of Industry, Competition & Trade, 2010, Vol. 10 Issue 1, p1-31, 31p, 9

    [4] Welch, John L.; Hammitte, Ann Lamport. MONTHLY DIGEST OF TRADEMARK DECISIONS ISSUED BY THE U. S . PATENT & TRADEMARK OFFICE.  Allen’s Trademark Digest, Apr2011, Vol. 24 Issue 10, p1-

    [5] Your guide to geographical indications worldwide. Managing Intellectual Property, Nov2008, Issue 184, p42-53, 12p

    [6] Borden, Neil H. The new trade-mark law. Harvard Business Review, 1947, Vol. 25 Issue 3, p289-305, 17p

    7George, Alexandra. Brand rules: When branding lore meets trade mark law.  Journal of Brand Management, Feb2006, Vol. 13 Issue 3, p215-232, 18p,

     

    [8] Higgins, D. M.; Verma, S. The business of protection: Bass & Co. and trade mark defence, c. 1870-1914. Accounting, Business & Financial History, Mar2009, Vol. 19 Issue 1, p1-19, 19p

    [9] Anna May Wyatt, Ms. Susan Hahn, (2011) “Copyright Concerns Triggered by Web 2.0 Uses”, Reference Services Review, Vol. 39 Iss: 2

    [10] World Intellectual Property Organization (WIPO) (2009), “What is intellectual property?”, World Intellectual Property Organization, available at www.wipo.int/about-ip/en/

    [11] Suzanne L. Holcombe .United States Patent and Trademark Office. Reference Reviews Volume: 22 Issue: 7 2008

    [12] Tebbey, Nicholas; Gunn, Graeme. The development of trade marks for colours, sounds and scents — safe harbours. Keeping Good Companies (14447614), May2010, Issue 4, p238-240, 3p

    [13] Feng, Zhen; Lübbe, Petra; Kennedy, Gabriela; Tabastajewa, Julianna; Yarnykh, Yulia; Swaine, Kate; Scungio, Maria. How to avoid company name clashes. Managing Intellectual Property, Sep2009, Issue 192, p26-34

    [14] Brigham, Sybil J. Brandnames (Book). Library Journal, 1982, Vol. 107 Issue 7, p718,

    [15] Fataneh Taghaboni-Dutta, Amy J.C. Trappey, Charles V. Trappey, Hsin-Ying Wu, (2009) “An exploratory RFID patent analysis”, Management Research News, Vol. 32 Iss: 12, pp.1163 – 1176

    [16] Šmaižienė, Ingrida.  REVEALING THE VALUE OF CORPORATE REPUTATION FOR INCREASING COMPETITIVENESS.. Economics & Management, 2008, p718-723, 6p,

    [17] Smith, Katherine Taken; Smith, Murphy; Kun Wang. Does brand management of corporate reputation translate into higher market value. Journal of Strategic Marketing, 2010, Vol. 18 Issue 3, p201-221, 21p

     

    [18] Rewoldt, Stewart H. ASSIGNMENT OF TRADE-MARKS.  Journal of Marketing, Apr48, Vol. 12 Issue 4, p483-487, 5p

     

    [19] Beth H. Alter, (2010) “Trademark registration can provide financial services companies with valuable benefits”, Journal of Investment Compliance, Vol. 11 Iss: 1, pp.59 – 61

    [20] Hall, R. (1992), “Strategic analysis of intangible resources”, Strategic Management Journal, Vol. 13 pp.135-44.

    [21] Betsy D. Gelb, James R. Gregory, (2011) “Brand value: does it belong on the balance sheet?”, Journal of Business Strategy, Vol. 32 Iss: 3, pp.13 – 18

     

    [22] Robert Guang Tian. The Psychology behind Trademark Infringement and Counterfeiting
    Journal of Product & Brand Management Volume: 17 Issue: 4 2008

     

    [23] Moorthi, Y.L.R. (2003), Brand Management: The Indian Context, Vikas Publishing House, New Delhi,

     

    [24] Park, C.S., Srinivasan, V. (1994), “A survey-based method for measuring and understanding brand equity and its extendibility”, Journal of Marketing Research, Vol. 31 pp.271-88.

    [25] Bello, D.C., Holbrook, M.B. (1995), “Does an absence of brand equity generalize across product classes?”, Journal of Business Research, Vol. 34 No.2, pp.125-31.

    [26] Elliot, R., Percy, L. (2007), Strategic Brand Management, Oxford University Press, New Delhi,

    [27] Rossiter, J.R., Percy, L. (1997), Advertising Communication and Promotion Management, McGraw-Hill, New York, NY, .

    [28] Ehrenberg, A., Barnard, N., Scriver, J. (1997), “Differentiation salience”, Journal of Advertising Research, Vol. 37 No.6, pp.7-14.

    [29] Nedungadi, P. (1990), “Recall and consumer consideration sets: influencing choice without alerting brand evaluations”, Journal of Consumer Research, Vol. 17 No.3, pp.263-76.

    [30] MacDonald, E., Sharp, B.K. (2000), “Brand awareness effects on consumer decision making for a common, repeat purchase product: a replication”, Journal of Business Research, Vol. 48 No.1, pp.5-15.

     

    [31] Shamindra Nath Sanyal, Saroj Kumar Datta, (2011) “The effect of country of origin on brand equity: an empirical study on generic drugs”, Journal of Product & Brand Management, Vol. 20 Iss: 2, pp.130 – 140

     

    [32] Tao, J., Daniele, J., Hummel, E., Goldheim, D., Slowinski, G. (2005), “Developing an effective strategy for managing intellectual assets”, Research Technology Management, Vol. 48 No.1, pp.50-8.

     

    [33] Herbert Jack Rotfeld, (2009) “Function and problems of brand name pharmaceuticals”, Journal of Product & Brand Management, Vol. 18 Iss: 4, pp.240 – 241

    [34] R.S. Petty. Naming names: trademark strategy and beyond: part one – selecting a brand name. Strategic Direction Volume: 24 Issue: 5 2008

     

    [35] Chisnall, P. M. ALUMINIUM HOUSEHOLD FOIL IN THE COMMON MARKET: RESEARCH FOR AN EFFECTIVE BRAND NAME. Journal of Management Studies, 1974, Vol. 11 Issue 3, p246-255, 10p

    [36] Brazell, Lorna. Chapter 3: Trade marks. Intellectual Property Protection & Enforcement, 7/9/1998, p29-54, 26p

    [37] Carty, P. (1994), “Fake’s progress”, Accountancy, December, Vol. 114 No.1216, pp.44-6.

    [38] Blatt, J. (1993), “Battling counterfeit products on the US side of the Pacific Rim”, The International Computer lawyer, Vol. 1 No.13, pp.32-3.

     

    [39] Lusk, J.L., Brown, J., Mark, T., Proseku, I., Thompson, R., Welsh, J. (2006), “Consumer behavior, public policy, and country-of-origin labeling”, Review of Agricultural Economics, Vol. 28 No.2, pp.284-92.

    [40] Koubaa, Y. (2008), “Country of origin, brand image perception, and brand image structure”, Asia Pacific Journal of Marketing and Logistics, Vol. 20 No.2, pp.139-55.

    [41] Yasin, N.M., Noor, M.N., Mohamad, O. (2007), “Does image of country-of-origin matter to brand equity?”, Journal of Product & Brand Management, Vol. 16 No.1, pp.38-48.

    [42] Jin, Z., Chansarkar, B., Kondap, N.M. (2006), “Brand origin in an emerging market: perceptions of Indian consumers”, Asia Pacific Journal of Marketing and Logistics, Vol. 18 No.4, pp.283-302.

    [43] Hui, K.M., Zhou, L. (2003), “Country of manufacture effects for known brands”, European Journal of Marketing, Vol. 37 No.1/2, pp.133-53.

    [44] Klein, J.G., Ettenson, R., Morris, M.D. (1998), “The animosity model of foreign product purchase: an empirical test in the People’s Republic of China”, Journal of Marketing, Vol. 62 No.January, pp.89-100.

    [45] Stephen F. Thode, James M. Maskulka, (1998) “Place-based marketing strategies, brand equity and vineyard valuation”, Journal of Product & Brand Management, Vol. 7 Iss: 5, pp.379 – 399

     

    [46] Evrard, Jean-Jo; Lange, Paul; Rawlinson, Paul; O’Byrne, Peter; Cailac, Cecile; De Martinis, Lorenzo; Delmas, Xavier Buffet; Morelli, Laura; Bothe, Andreas; Clefsen, Bettina; Verhoestraete, Florence; Vos, Gregor; Desrois, Ingrid. The myth and reality of European trade trade mark harmonisation. Managing Intellectual Property, May2010, Issue 199, p20-2

    [47] Thakor, M.V., Lavack, M.A. (2003), “Effect of perceived brand associations on consumer perceptions of quality”, Journal of Product & Brand Management, Vol. 12 No.6, pp.394-407

    [48] Pamela S. Norum, Angela Cuno, (2011) “Analysis of the demand for counterfeit goods”, Journal of Fashion Marketing and Management, Vol. 15 Iss: 1, pp.27 – 40

    [49] Chaudhry, P.E., Walsh, M.G. (1996), “An assessment of the impact of counterfeiting in international markets: the piracy paradox persists”, Columbia Journal of World Business, Vol. 31 No.3, Fall, pp.34-49.

    [50] Kapferer, J-N. (1995), “Brand confusion: empirical study of a legal concept”, Psychology & Marketing, Vol. 12 No.6, pp.551-69.

    [51] Grossman, G., Shapiro, C. (1988b), “Counterfeit-product trade”, American Economic Review, March, Vol. 78 No.1, pp.59-75.

     

    [52] Lofgren, H. (2002), “Generic drugs: international trends and policy developments in Australia”, Working Paper No. 10, Pharmaceutical Industry Project Equity, Sustainability and Industry Development Working Paper Series, Centre for Strategic Economic Studies, Victoria University of Technology, .

    [53] Bloch, P.H., Bush, R.F., Campbell, L. (1993), “Consumer accomplices in product counterfeiting: a demand-side investigation”, Journal of Consumer Marketing, Vol. 10 No.4, pp.27-36.

    [54] Dodge, H.R., Edwards, E.A., Fullerton, S. (1996), “Consumer transgressions in the marketplace: consumers’ perspectives”, Psychology & Marketing, Vol. 13 No.8, pp.821-35.

    [55] Albers-Miller, N. (1999), “Consumer misbehaviour: why people buy illicit goods”, Journal of Consumer Marketing, Vol. 16 No.3, pp.273-87.

    [56] Muncy, J.A., Vitell, S.J. (1992), “Consumer ethics: an investigation of the ethical beliefs of the final consumer”, Journal of Business Research, Vol. 24 No.4, pp.297-311.

    [57] Tom, G., Garibaldi, B., Zeng, Y., Pilcher, J. (1998), “Consumer demand for counterfeit goods”, Psychology & Marketing, August, Vol. 15 No.5, pp.405-21.

    [58] Cordell, V.V., Wongtada, N., Kieschnick, R.L. (1996), “Counterfeit purchase intentions: role of lawfulness attitudes and product traits as determinants”, Journal of Business Research, Vol. 35 pp.41-53.

    [59] Messick, D.M., Brewer, M.B. (1983), “Solving social dilemmas”, in Wheeler, L., Shaver, P.R. (Eds),Review of Personality and Social Psychology, Sage Publications, Beverly Hills, CA, .

    [60] Grabowski, H.G., Vernon, J.M. (1996), “Longer patents for increased generic competition in the US”, PharmacoEconomics, Vol. 10 pp.110-23.

     

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    International banking and payment

    Discuss about international banking and payment ………………..

    INTRODUCTION

    A Letter of credit is usually issued by a bank to allow the person holding it to obtain a particular amount of money from another bank in a different country. Increased international trade has necessitated the use of letter of credit instead of using other modes of payment. However, the cases of fraud and forgery have increased in the recent past revealing some legal problems with the use of the document. This paper will focus on one clause regarding the use of letter of credit in the US and UK laws.

    UNITED STATES LETTER OF CREDIT LAWS

    In US the letter of credit law is a discipline which is high specialized. The usual rules of contract do not apply even if letter of credit is a form of commercial contract. Letter of credit has mercantile specialty with many formal legal requirements that have developed outside the common law of contract. Larger multinational companies and financial institutions have in-house experts who deal with this highly technical area. This is because of huge penalties that may arise from any misunderstanding of this document. Many courts in US fails to understand this document’s law making it difficult for them to relied on when it comes to the interpretation of this document. Increased cases of litigation of letter of credit has required banks and trading companies to employ services of the experts when it comes to the interpretation of this document.[1] The applicants of this document have many times managed to prevent their payment through court on the basis of fraud.  The court will issue a preliminary or temporary injunction when the parties of the issuer bank and the applicant are there but the beneficiary is not there. The letter of credit consist three contractual relationships which are distinct and separate. First there is underlying contract which leads to the application of the letter of credit.  This may involve the transaction taking place between the applicant and beneficiary of the letter of credit such as exchange of good and services which are paid by the applicant. Secondly, there is contractual relationship between the applicant of the letter of credit and the issuer bank which undertake to pay beneficiary in case of the default of the applicant. Finally, there is letter of credit where the issuer promises to pay the final holder after meeting the laid requirement.

    The three relationships are independent of each other under the letter of credit law.  The breach of one relationship does not affect the other relationships. This means obligations and rights of the parties in one relationship are not affected by the breach of another relationship by the parties.  This means that the issuer of the letter of credit must honor the payment even if the beneficiary has not performed his obligation. The issuer must also pay even if the applicant has failed to meet his financial obligation to the bank.  The document just need to meet all the terms of presentation and also ensure it is presented on time since it has an expiry period. This has acted as the major loop hole for fraud cases where some of the parties in the letter of credit fail to meet their obligations and yet they get their benefits. This has led many legal cases both domestically and international where most of time the beneficiary of the contract receive payment without meeting his or her contractual obligation.

    According to the uniform commercial code (UCC), article 5-109(a), a letter of credit may be presented which appears to have met all the requirements of presentation on its face, but it is forged materially fraudulently, honoring such a presentation will be facilitation of fraud that is material on the side of the beneficiary to the applicant and issuer. The article states that the issuer of the letter of credit is required to honor the document if it is presented by the person nominated who might be doing so in good faith and not being aware of the material fraud or forgery in the document. The letter of credit should be honored by the confirming bank which may be doing so in good faith. This article also allows the issuer of the letter of credit who may be acting in good faith to dishonor or honor the document. This provision in the UCC creates many legal problems which have facilitated material fraud or forgery of the letter of credit in many cases.[2]  First, it is so easy for the beneficiary of this document to forge or carry material fraud with the document since the law requires the document just to appear to have met all the terms required on its face.  Though the document may appear to have met all the requirements on its face, it is possible for it to have been forged by the beneficiary in order to receive its payment fraudulently. The UCC requires the confirming bank to honor the document from the nominated person or the issuer who may be acting in good faith without knowing of forgery or fraud case associated with the letter of credit. This make it legally possible for the beneficiary of the document to forge it since he or she knows that the document will be honored by the confirming bank once it is presented so long as it meets all the requirements on its face. This is a legal loophole in the letter of credit law that appears due to the separation of the three contractual relationships present in the transactions involving letter of credit. First there is a contractual relationship that exists between the applicant and the beneficiary who may be exchanging good or services in their normal trading. This contract is independent of other contractual relationship such as failure of the confirming bank to honor the letter of credit. Secondly, there is a contractual relationship between the applicant and the issuing bank where the bank promises to honor the letter of credit in case the applicant fails to pay. This contractual relationship is also independent of the other transactions taking place such as exchange of goods or services between the beneficiary and the applicant. The issuing bank promise to honor the agreement regardless of whether the contract between the beneficially and the applicant was carried as was expected. This makes it possible for the beneficiary to honor the document even without performing his or her obligation in the contract between him/her and the applicant. The third contractual relationship is where the issuer give the letter of credit and promise that  he will pay the final holder of the letter no matter whether the other contracts has been met or not. The separation of the these three contractual relationship  in the US  letter of credit law is what has been creating the legal problems and need to be addressed  in order to minimize the cases of material fraud and forgery in the international banking. The three contractual relationship need not to be separate and independent like the way they are. Each contractual relationship need be dependent of other contractual relationships. The honoring of the present contractual relationship ought to happen if the previous contractual relationship has been met. For instance, the issuer should not honor the letter of credit if the beneficiary has not performed his or her duty to the beneficiary.  This will minimize the cases of material fraud and forgery which results from legal loophole that enable the beneficiary to receive payment without honoring his or her duty. The law should also require the confirming bank not to honor the payment if the beneficiary has not performed his or her contractual obligation. The issuing bank should also not accept to take liability if the applicant of the letter of credit does not have enough money in the bank to meet the obligation of the beneficiary.

    UK LETTER OF CREDIT LAWS

    In UK, letter of credit laws are stipulated in the uniform custom and practice for documentary credits (UCP).[3] This was adopted in July 2007 after changing UCP 500 which was used there before. The new law amended some of the provision which were in UCP 500 in areas such as time frame for honoring letter of credit, withdrawal and rejection of letter of credit among other provisions. This amendment were meant to improve  the transactions of international banking that use letter of credit in order to minimize cases of material fraud and forgery. According to the British laws of the letter of credit, the autonomy of the different contractual relationship is also present.  The obligation of the bank that is issuing the letter of credit is independent from the other contracts that exist between the applicant and the beneficiary who may be having a sale of goods contract.   However, according to Ross and Xiang, the British law has some exceptional clauses in order to prevent fraud and forgery cases.[4] Unlike in the case of UCC, the payment may be stopped even if the document has met all the terms on its face under the rule of fraud. If the case of fraud is realized before the payment is made, the payment will be stopped so long as the party demanding the payment or the presenter belongs to the class that is protected.

    However, the fraud rule exception does not create lack of confidence or uncertainty in the use of letter of credit. This exception does not interfere with the independence of the other contractual relationship in order to ensure the efficiency of the letter of credit. The case bank of Nova Scotia v. Angelica-white wear ltd show how the exception clause in the fraud rule may cause policy tension.

    According to UCP, Article (3), credit is usually separate from other transactions of sales and other contracts which may have led to their use.[5]  This provision also applies to banks which are not part and parcel of such sale contracts which may have necessitated the use of the credits. The article relieves the bank any obligations from the contracts that take place between the applicants and the beneficiary. The duty of the bank to accept, pay, negotiate or perform any other obligation is not subject to the other transactions that are taking place between the applicant and beneficiary of the letter of credit. The article also stipulates that the beneficiary is not part of the contractual relationship that exists between the issuing bank and the applicant and that between the issuing bank and the confirming bank. This provision gives a clear separation among the contractual relationships between different parties in the transaction.  This provision is similar to the American UCC where all the contractual relationships are separate from each other. The applicants and the issuing bank have their contract which is not affected by other party in the whole transaction. This still leave the beneficiary to receive payment even without performing his contractual obligation. The contractual relationship between the banks is also separate and independent of the transaction between the applicant and the beneficiary.

    CONCLUSION

    The addition of fraud rule in the UCP makes it possible for all the transactions to be carried out without cases of fraud in UK. This is different from the Ameican UCC which does not provide some exceptions under the fraud rule to enable any party in the transaction to stop honoring the letter of credit once fraud case is discovered before the payment. This provision makes the British UCP to be better than the American UCC.

     

     

    REFERENCES

    Buckley, Ross P. and Gao, Xiang. Development of the Fraud Rule in Letter of Credit Law: The Journey So Far and the Road Ahead. Int’l Econ. L. 663 (2002)

    James G Barnes, James E Byrne. Letters of Credit. The Business Lawyer. Aug 2010. Vol. 65, Iss. 4; pg. 1267, 12 pgs.

    Manning, Jacob. The Statute of Limitations Under Article 5 of the UCC. Uniform Commercial Code Law Journal. Nov 2009. Vol. 42, Iss. 1; pg. 95

    Peter Ellinger and Dora Neo. Law and Practice of Documentary Letters of Credit. Banking and Finance, International Trade, Commercial Law. First edition, Hart Publishing, UK, 2010.

    Uniform customs and practice for documentary credits. ICC publication No. 500 Effective January 1, 1994.

    Bank of Nova Scotia v. Angelica-Whitewear Ltd., [1987] 1 S.C.R. 59 (1987)

     

    BIBLIOGRAPHY

    Peter Ellinger and Dora Neo. Law and Practice of Documentary Letters of Credit. Banking and Finance, International Trade, Commercial Law. First edition, Hart Publishing, UK, 2010

    Buckley, Ross P. and Gao, Xiang. Development of the Fraud Rule in Letter of Credit Law: The Journey So Far and the Road Ahead. Int’l Econ. L. 663 (2002)

    James G Barnes, James E Byrne. Letters of Credit. The Business Lawyer. Aug 2010. Vol. 65, Iss. 4; pg. 1267, 12 pgs.

    Manning, Jacob. The Statute of Limitations Under Article 5 of the UCC. Uniform Commercial Code Law Journal. Nov 2009. Vol. 42, Iss. 1; pg. 95

    Uniform customs and practice for documentary credits. ICC publication No. 500 Effective January 1, 1994.

    Uniform Commercial Code



    [1] James G Barnes, James E Byrne. Letters of Credit. The Business Lawyer. Aug 2010. Vol. 65, Iss. 4; pg. 1267, 12 pgs.

    [2]   Manning, Jacob. The Statute of Limitations Under Article 5 of the UCC. Uniform Commercial Code Law Journal. Nov 2009. Vol. 42, Iss. 1; pg. 95

    [3] Peter Ellinger and Dora Neo. Law and Practice of Documentary Letters of Credit. Banking and Finance, International Trade, Commercial Law. First edition, Hart Publishing, UK, 2010.

    [4] Buckley, Ross P. and Gao, Xiang. Development of the Fraud Rule in Letter of Credit Law: The Journey So Far and the Road Ahead. Int’l Econ. L. 663 (2002)

    [5] UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS. ICC Publication No. 500 Effective January 1, 1994

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    International sale contract

    Discus about international sale contract ………………………….

    Introduction

    There are different laws that are applied in the international sales of goods and services. The parties in the international sale of goods and services have freedom to choose laws that are going to govern their contract. They may decide to use laws of a given country or use internationally accepted convention to define the terms of the agreement.

    QUESTION ONE

    To: GYD and Citralis CEOs

    FROM: legal associate Company

    Date: May 18, 2011.

    Question:  which are trade laws that the two companies can use in their contract and is it possible for the contract to be legally enforced?

    Legal Facts

    The contract between GYD and Citralis is an international contract since it involves parties from different countries. GYD is based in England while Citralis is based in France thus making application of the International Sales of Goods Act applicable. Both parties in the contract belong to states which applies international sales of goods Act (ISGA).[1]  According to article 1(a) of this Act, all sales of goods between parties whose countries are signatory of this Act will be governed by this Act. This article continues stipulate that, neither the commercial character nor the nationality of the parties will be considered when applying this convention. This means that in order to determine whether this convention will be applied in deciding this case, the nationality of the two companies will not be a consideration so long as both companies belong to countries who are signatories of the convention.

    Discussion

    Laws that govern international sales of good are defined in the United Nations convention on contracts for the international sales of goods (CISG).[2] According to Bevilacqua, the aim of this convention is to determine objectives and methods of the international sale.[3] CISG offers international laws that are uniform to be used in all international sales transactions by individuals from the member states.[4]  The convention was ratified by about 76 countries in August 2010 and more states are joining. These member states represent about three quarter of the total international trade. This uniform law make it easier for international transactions to be carried since the traders who may be importing or exporting the goods may not need to choose laws which they are going to apply.[5] This convention is relied upon by the contracting parties and the courts. Countries which have not ratified CISG such as United Kingdom usually apply domestic laws when they are carrying out international transactions.  These laws define how the parties should relate with each other when they are carrying international sale of goods. In UK, sales of goods act of 1979 govern all the international transactions where one of the parties is a British resident.[6] According to Rome regulation, (Reg. (EC) No. 593/2008) laws by European Union council should override domestic laws.[7]

    The international sale of goods in the United Kingdom is also governed by the uniform laws on the international sales act 1967 which UK is signatory.[8] According to this Act, sec 2(a) the enforcement will depend with whether the parties have chosen their contract to be governed by this law. When the parties choose to carry their contract under this law, other domestic laws provided by other Acts will not apply except in case of a few exceptions. This may include provisions in the sales of goods acts of 1979 among other provisions in different Acts. According to article (1) of this law, the law shall apply to contract involving an offer and acceptance where parties belong to territories of different states. This article continues to stipulate that, the law will apply even when goods are delivered in a state that is different with the states where offer and acceptance of the goods were carried down.

    The uniform international sale of goods Act is applicable in France when carrying trade with other parties from other countries. So the CEO of the Citralis Company will not have any problem to apply the same law which is applicable in the United Kingdom in order to facilitate their transaction. Again, the GYD also has patent rights for both software and hardware of the devices that hold in many countries including European Union where both France and England are members. According to Karsten and Sinai, in the European contract laws, the parties involved in the transaction may decide to use the laws of the countries where the transaction is taking place.[9]  Parties may decide to use contract laws of the states where the contract is taking place. In this case the CEOs of both the GYD and Citralis companies may decide to use the laws of any of the member countries. European Union has also tried to harmonize its international contract laws with those of the CISG. This is to enable many member states which have ratified the CISG to apply it in line with the European Union international contract laws.[10] However, the European union leave it open for member states to choose which laws they would like to use when they are carrying international transactions.

    When preparing international trade contract, it is important for both parties to ensure all the legal requirements have been met.[11] According to the law of contract, contract price must be given in order to avoid any misunderstanding that may arise later between the parties.  The price given must be detailed for instance price per unit in order to ensure everything is very clear between the two parties.[12]  The buyer and the seller are also required to define the time and the mode they will use in order to settle their bill. Thus mistake by the CEOs of the two companies to forget to write down their terms of contract is a big blunder which may affect the enforceability of the contract. According to the contract law, the terms of the contract must be written down in order to show some of the important areas such as the payment condition, price, period and mode of delivery. Greenfield and Rusch argues that oral contract must be followed by a written agreement in order to make it enforceable.[13]  Moss support this argument by stating that even uniform law requires contract to be made in writing.[14] Oral agreements are not preferable since there is no evidence to show such an agreement. Oral contract are also not possible to enforce legally due to lack of evidence. Failure to include the laws that will be applied, specific laws to govern the trade and the contract price would make the contract not be enforceable in the court of law.[15]

     

     

    QUESTION TWO

    To: GYD and Shanghai Motors’ CEOs

    FROM: legal associate Company

    Date: May 18, 2011.

    Question:  which are trade laws that the two companies can use in their contract and is it possible for the contract to be legally enforced?

    Legal Facts

    In this case the GYD is now based in Germany and enter into a sale contract with Shanghai motors, a motor vehicle manufacturing company based in China. The CEOs of the companies enter into FOB INCOTERMS for the GYD to sell 500,000 units of the device to the SM. In this case, the CEO of GYD remembers to state that the contract will be governed by the laws of Germany. However, they forget to include the designation of the year of INCOTERMS they will apply in this contract if they happen to be there. Again they forgot to include the total contract price of the 500,000 units or even the price for each unit. This may make it difficult for the parties to enforce their sale contract.

    Discussion

    The move of the GYD to choose and state the type of law that will govern the contract may make it easier for the two parties to perform their contractual obligations. The CEO of the GYD had already chosen the Germany laws to govern the contract. The two parties may decide to apply the Germany law if it will be convenient to them to govern their contract. For these laws to be applied, they must be also be favourable even to the shanghai motors.  The choice of INCOTERMS will also make the transaction between companies possible.[16]  According to Kumar, Incoterms reduce freight costs in international trade. The rules of Incoterms are recognized internationally and they are used in all parts of the world for both domestic and international sale contract.[17] As Bergami argues these rules were established in 1936 and they define and interprete some of the commercial terms that are common in international sale.[18] As Cook  point out, the Incoterms define the responsibilities of both importers and exporters.[19] This is supported by Barron who argues that incoterms are used to minimize discrepancies between the sellers and the buyers.[20] Thus the parties in this contract may decide to use these rules in carrying out their transaction. The incoterms are recognized worldwide and thus the two parties may be very comfortable to apply these rules. In addition the DYD Company may decide to enforce the Germany laws to govern the contract on the ground that it is the law that the two parties agreed to apply in their contract.

    However, failure to state the year of Incoterms which will be applied may also make it difficult to legally enforce the terms of contract. There are incoterms for different years ranging from incoterms 2000, incoterms 2010 and incoterms 2011. These incoterms for different years are different in their provision and not any incoterm can be applied in any case. Thus it is important for parties in the contract to choose the year of their incoterms in order for it to be clear to them and also enforceable in the court of law. The British law may not apply in this case since contract is deemed to involve parties from Germany and china. Though the contract was written in English language that does not mean it will apply the British law. The international sales contract laws provide that the language used in the contract may be chosen by the parties or if that is not the case, English language may be used. Thus the choice of the English language may be in accordance with that provision of language in the international sale contract.[21]

    The two CEOs were supposed to state the contract price of the devices in writing in order to ensure legal enforceability. According to the international sale contract laws, all the details concerning the price of the goods must be clearly stated in order to remove any misunderstanding that may arise between the parties. These details may include the price that will be charged per unit, mode of payment and the date for the payment. All these details must be provided before the parties signs their terms of the contract. Thus it is difficult for the two companies to determine the prices of the devices in the contract since it was not provided in the terms of the contract. This agreement can only be termed as oral agreement which is difficult to enforce before the court of law.

    Though some of the very important requirements in the contract between the two parties are missing, most of the terms of the contract are there which may make the contract between the two companies to be legally binding.  The terms of the contract has already chosen the laws that will apply in the contract and according to the GYD Company, the German law will apply. The parties in the contract may also agree to use the Germany laws in order to determine those terms they never included in the contract.

     

    QUESTION THREE

    To: GYD and DWL CEOs

    FROM: legal associate Company

    Date: May 18, 2011.

    Question:  which are trade laws that the two companies can use in their contract and is it possible for the contract to be legally enforced? Is DWL liable for refusing to accept the goods when they were delivered by GYD?

    Legal Facts

    In this case, the GYD is based in the United States and enter into a sale contract with DWL which is a Germany motor company.  The two companies enter into a contract where the GYD is required to supply the DWL with 500,000 units of the motor devices.  In this agreement the companies does not choose the law to be applied in the contract though it provided price per unit. However, when the DYD Company delivered the goods to the DLW, the DLW refused to accept the goods.

    Discussion

    In this case though the terms of contract between the two parties do not provide laws that are to be applied, all the other terms of the contract are provided. For instance the price per unit was provided and therefore the DWL was legally supposed to accept the devices once they were delivered by the GYD Company. However, failure by the two companies to include the choice of the laws that will govern their contract may have led to the action of the DWL Company to reject the goods. The law of contract require companies to include all the terms of the contract including the choice of the law that will govern their contract. Failure to include some the terms like the choice of the law may make it possible for one of the parties to easily breach the contract. This may be the case of the DWL where the company took advantage to breach the contract by failing to accept the devices once they were delivered by the DYD Company. DYD Company may take some legal action against the DWL for failure to accept the devices once they were delivered.

    According to the international sale of good Act, the buyer has an obligation to pay the contract price as well as to take the goods when they are delivered so long as they have met all the requirements as they had agreed in the contract.[22] According to section 60 of this Act, the buyer is required to do all that could be reasonably done in order to allow the seller to deliver the goods.  The article also requires the buyer also to take the goods once they are delivered. When the buyer fails to perform his or her obligation, the seller may take several actions against the buyer.  First, the seller may demand the buyer to pay the contract price, take the delivered goods or any other obligations that the seller may view necessary.[23]  Secondly, the seller may decide to extend the period for acceptance in order to allow the buyer to take the goods.  Thirdly, the seller may declare the contract void since the buyer has failed to perform his obligation in the contract.[24] This is even after the buyer fails to perform his or her duty after extension period given by the seller.  However, this can only happen if the buyer had not paid the contract price and it is done on time before time expires for doing so.[25]  Fourthly, the seller may claim to be paid damage by the buyer which includes all the costs he or she has incurred in order to deliver the goods to the premises of the buyer. As Avery argues this damages may be in terms of money or any other form of damage that may be suitable to the seller.[26]

    Conclusion

    The three scenarios presented in this paper show how it is important for the parties in international contract to define the laws they are going to apply. Failure to choose the law   to govern the contract may make it difficult to enforce the contract. However, the parties may agree fix the terms of the contract that are not defined in order to complete their contract.

     

    BIBLIOGRAPHY

    Avery, Katz.  Remedies for Breach of Contract Under the CISG. International Review of Law and Economics.  2005. Vol. 25, Iss. 3; pg. 378

    Barron, Jacob. New Decade, New Upgrade: Incoterms 2010 Picks Up Where Incoterms 2000 Left Off. Business Credit, Feb2011, Vol. 113 Issue 2, p20-22

    Bergami, Roberto. incoterms 2010: what you need to know for smooth trading. MHD Supply Chain Solutions, Jan/Feb2011, Vol. 41 Issue 1, p38-40,

    Bevilacqua, Thomas. L’article 3 de la Convention de Vienne et les contrats complexes dans le domaine de l’informatique: une lecture de la jurisprudence pertinente. McGill Law Journal. Montreal: Nov 2005. Vol. 50, Iss. 3; p. 553

    Convention relating to a Uniform Law on the International Sale of Goods. (The Hague, July 1, 1964)

    Cook, Thomas A. Incoterms, Revenue Recognition and Transfer of Title.  Managing Imports & Exports, Feb2011, Vol. 2011 Issue 23, p1-4, 4p

    Electronic Library on International Commercial Law and the CISG

     

    Greenfield, Michael  and Rusch, Linda . Limits on standard-form contracting in revised Article 2

    Incoterms 2010. The new Incoterm  rules 2010. Retrieved on May 9, 2011.http://www.iccwbo.org/incoterms/

    International Sale of Goods Act [RSBC 1996] chapter 236

    http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96236_01

    International Sale of Goods. http://www.internationalcommerciallawblog.com/category/international-sale-of-goods/

    International sales of Goods Act.

    International sales transactions. http://internationalsaleslaw.com/

    Karsten, Jens and  Sinai, Ali R. The Action Plan on European Contract Law: Perspectives for the Future of European Contract Law and EC Consumer Law.  Journal of Consumer Policy, Jun2003, Vol. 26 Issue 2, p159-195, 37p

    Kumar, Sameer. Logistics Routing Flexibility and Lower Freight Costs through Use of Incoterms. Transportation Journal, Summer2010, Vol. 49 Issue 3, p48-56, 9p

    Louis F Del Duca and Frances H Del Duca. Judicial highlights: Article 2 – Sales. Uniform Commercial Code Law Journal.  2001. Vol. 33, Iss. 4; pg. 484

    Michael Bridge. Commercial Sales: Sale of goods in Scotland–a second tender: J&H Ritchie Ltd v Lloyd Ltd. The Journal of Business Law.  2007. pg. 814

    Michael Bridge. The International Sale of Goods. Law and Practice. Second Edition,    Oxford university press, 2007.

    Moss, Debra Cassens. A handshake, not writing, may seal contracts in future. ABA Journal. 1995. Vol. 81 pg. 22, 2 pgs

    Sales of Goods Act of 1979

    Schlechtriem, Peter and Butler, Petra .UN Law on International Sales. Springer-Lehrbuch2009, LIV, 352 p.

    Soili Nystén-Haarala and Nari Lee, Jukka Lehto. Flexibility in contract terms and contracting processes. International Journal of Managing Projects in Business. 2010. Vol. 3, Iss. 3; pg. 462

    Some problems in measuring damages for anticipatory breach of a contract of sale. Harvard Law Review, Mar1939, Vol. 52 Issue 5, p817-823,

    Regulation (EC) No 593/2008 of the European Parliament and Of the Council

    Of 17 June 2008.On the Law Applicable To Contractual Obligations (Rome I)

     

    Uniform Commercial Code Law Journal. 1999. Vol. 32, Iss. 2; pg. 115, 34 pgs

    Uniform Laws on International Sales Act 1967

    Vikki Rogers  and Albert. Kritzer A uniform international sales law terminology. 2003. Retrieved onMay9,2011http://www.cisg.law.pace.edu/cisg/biblio/rogers2.html



    [1] International sales of Goods Act.

    [4] International sales transactions. http://internationalsaleslaw.com/

    [5] Convention relating to a Uniform Law on the International Sale of Goods. (The Hague, July 1, 1964)

    [6] sales of goods act of 1979

    [7] Regulation (EC) No 593/2008 of the European Parliament and Of the Council

    Of 17 June 2008.On the Law Applicable To Contractual Obligations (Rome I)

     

    [8] uniform laws on the international sales act 1967

    [9] Karsten, Jens and  Sinai, Ali R. The Action Plan on European Contract Law: Perspectives for the Future of European Contract Law and EC Consumer Law.  Journal of Consumer Policy, Jun2003, Vol. 26 Issue 2, p159-195, 37p

    [10] European Union international contract laws

    [12] Soili Nystén-Haarala and Nari Lee, Jukka Lehto. Flexibility in contract terms and contracting processes. International Journal of Managing Projects in Business. 2010. Vol. 3, Iss. 3; pg. 462

     

    [13] Greenfield, Michael  and Rusch, Linda . Limits on standard-form contracting in revised Article 2

    Uniform Commercial Code Law Journal. 1999. Vol. 32, Iss. 2; pg. 115, 34 pgs

    [14] Moss, Debra Cassens. A handshake, not a writing, may seal contracts in future

    ABA Journal. 1995. Vol. 81 pg. 22, 2 pgs

    [15] Schlechtriem, Peter and Butler, Petra .UN Law on International Sales. Springer-Lehrbuch

    2009, LIV, 352 p.

     

    [16] Vikki Rogers  and Albert. Kritzer A uniform international sales law terminology. 2003. Retrieved on May9,2011.

    http://www.cisg.law.pace.edu/cisg/biblio/rogers2.html

    [17] Kumar, Sameer. Logistics Routing Flexibility and Lower Freight Costs through Use of Incoterms. Transportation Journal, Summer2010, Vol. 49 Issue 3, p48-56, 9p

    [18] Bergami, Roberto. INCOTERMS 2010: WHAT YOU NEED TO KNOW FOR SMOOTH TRADING. MHD Supply Chain Solutions, Jan/Feb2011, Vol. 41 Issue 1, p38-40,

    [19] Cook, Thomas A. INCOTERMS, Revenue Recognition and Transfer of Title.  Managing Imports & Exports, Feb2011, Vol. 2011 Issue 23, p1-4, 4p

    [20] Barron, Jacob. New Decade, New Upgrade: Incoterms 2010 Picks Up Where Incoterms 2000 Left Off. Business Credit, Feb2011, Vol. 113 Issue 2, p20-22

     

    [21] Michael Bridge. The International Sale of Goods. Law and Practice. Second Edition,    Oxford university press, 2007

    [22] International Sale of Goods Act [RSBC 1996] CHAPTER 236http://www.bclaws.ca/EPLibraries/bclaws_new/document/ID/freeside/00_96236_01

     

    [23] Some problems in measuring damages for anticipatory breach of a contract of sale. Harvard Law Review, Mar1939, Vol. 52 Issue 5, p817-823,

    [24] Louis F Del Duca and  Frances H Del Duca. Judicial highlights: Article 2 – Sales. Uniform Commercial Code Law Journal.  2001. Vol. 33, Iss. 4; pg. 484

     

    [25] Michael Bridge. Commercial Sales: Sale of goods in Scotland–a second tender: J&H Ritchie Ltd v Lloyd Ltd. The Journal of Business Law.  2007. pg. 814

     

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    contract law

    ANSWER THE FOLLOWING QUESTION
    1 On December 1st, Alan offered to sell 200 filing cabinets to Brenda at £50 per cabinet.  Alan said the offer was open for one week only and would end on Friday 7th December at 12.00pm.  The next day Brenda phoned Alan’s mobile phone to ask what discount he would offer if she bought 800 cabinets.  Alan’s phone was switched off so Brenda left the message on his voice-mail answering service.
    Later that day, having realised what a good deal Alan’s offer was, Brenda sent a fax message to Alan telling him to ignore the voicemail message sent earlier in the day and to accept her offer to buy 200 filing cabinets at £50 each.  Before Alan read the faxed message, he listened to Brenda’s voicemail message.  Alan then phoned Charlie, who accepted Alan’s offer to sell immediately.  On Saturday 8th December David, who was told of the offer by Brenda on December 1st, posted a letter to Alan’s factory accepting the offer to buy 200 cabinets at £50 each.
    Advise Brenda and David. important: Can you first start it with the instruction like talking about what are you going to write on it. and then identifying what kind of contract law is it and then starting the essay by advising them.

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    Capital punishment

    What is capital punishment?

     

    Capital punishment is viewed as a special crime because the manner in which the death sentence convicts are treated is different from other convicts (Brennan, 2008). In addition, the social prejudice that is associated with capital punishment is much greater and it cannot be compared by the ordinary crimes. Many countries as a result have abolished the capital punishment. Some states within the U.S federation have maintained the death penalty punishment of the offenders unlike other states within the federation (Ghassemi, 2009). In Asia the capital punishment of offenders has been viewed negatively. The only similarity between capital punishment and the ordinary sentences is that both are crimes but the magnitude of the difference shows that these two are far from similar.

    The punishment of capital punishment includes hang and lethal injection. This is because the death penalty convicts are considered to have committed intolerable crimes against humanity such a rape and murder (Johnson, 2010). The ordinary legal punishment usually involves a given period of sentencing by but capital punishment involves confirmed ultimatum of death of the offenders.  In addition, parole is usually denied for capital punishment as opposed to other crimes in which consideration of the punishment is given (Hudson, 2009).

     

     

     

     

     

     

     

     

     

     

     

    References

    Brennan, G. (2008). Crime and punishment: An expressive voting view. European Journal of Law and Economics, 26(3), 237-252

    Ghassemi, G. (2009). Criminal punishment in Islamic societies: Empirical study of attitudes to criminal sentencing in Iran. European Journal on Criminal Policy and Research, 15(1-2), 159-180

    Hudson, D. (2009). Adult time for adult crimes. ABA Journal, 95(11), 16-17.

    Johnson, D. (2010). Asia’s declining death penalty. The Journal of Asian Studies, 69(2), 337-346

     

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    Legal Drinking Age

    What are the consequences of alcohol use on the individual health??

     

     

    Introduction

    The consequences of alcohol use on the individual health are considerably severe especially for adolescents.  As a result, the United States the alcohol control policy was enacted which provides that 21 years is the national legal minimum drinking age. Despite this legal provision, underage adolescents are increasingly being involved in drinking and abuse of a variety of alcoholic drinks. It is notable that in the past, some college presidents have supported advocacy groups on reducing the legal drinking age in the US to 18 years (Gerard 35). On the other hand there is growing scientific evidence that supports 21 years as the appropriate minimum drinking age. This is thus considered as the most probable intervention in the reduction of the incidences of underage involvement in alcohol consumption. Despite the intercessions which aim at preventing young people from drug abuse there are opposing views on the age limit. However it is generally accepted that drinking is a problem among the youth in the United States as illustrated by the negative implications of drug use and abuse.  Because of the controversies and debates around the legal drinking age, this research paper gives a critical analysis and discussion of the various views and opinions on this issue and their implication of the legal minimum drinking age.

    The minimum legal drinking age in the United States has been 21 years since 1984 (Carpenter, Christopher and Carlos 133). Seven states in the US have attempted to reduce the legal drinking age but majority of the states support the current legal age limit. This demonstrates the differences in opinion among various groups on the alcohol control policy of the United States. Since none of the bills which propose for reduction of the age limit have been enacted in the US, it shows that many people consider the age limit to be a way of protecting the young people from drug abuse.  The public debate on lowering this age limit continue to be supported by the proponents of this issue such as the group of college and university presidents who in 2008 showed that they were discontented with the age limit and advocated for public outcry that would result to the reduction of the age limit. The Choose Responsibility organization supported the reduction of the age limit saying that it should be reduced to 18 years (Miron and Tetelbaum 317). According to this organization, the youth should be given the opportunity of being responsible for their lives instead of forcing a law on them which encourages them to break it leading to increased alcohol use among underage children. The opponents of the reduction of the legal drinking age on the other hand argue that the current law helps in reducing the incidences of alcohol abuse by young people and thus prevent the medical and social consequences which result from alcohol use.

    Despite the dilemma that faces the legal age limit for alcohol use in the United Sates, what is at stake should be given the major consideration in discussing most appropriate age limit. It is important to note that most of the young people below the age of 21 are students and the implication on drinking on their academic performance is an important consideration of the alcohol regulation. The impact of drinking on academic performance is at stake if the age limit is reduced to 18 years as it has been advocated by some groups (Carroll & Joseph 4). The support of college presidents who are one of the major stakeholders of the youth affairs on the reduction of the drinking age should also not be taken for granted (Rossow, Ingeborg, Thomas and Kirsimarja 468). This is because of the evaluation of the impact of the legal limit on the drinking patterns of young people by the academic the counsel and management of the youth.

    It is evident that the aim of the state in fixing the legal minimum drinking age at 21 is to reduce the incidences of alcohol use among the youth. However, questions on the effectiveness of this legislation in attaining what it was intended for are important issues in the debate on the alcohol control policy. It is likely to be true that enactment of the legal limit would lead to increased drinking among the underage considering that alcohol is readily available in malls, supermarkets, clubs and restaurants (Toomey, Traci, Toben, Nelson and Kathleen 958). It is thus argued that since underage drinkers could only need the help of their 21 year old colleagues and friends to acquire the drinks on their behalf, the enforcement of the alcohol control policy among the youth is difficult in the United States.

    The state is a stakeholder on the youth affairs which has acted to limit the legal drinking age. The parents as the major stakeholders of the age limit have greatly supported the 21 year age limit because of the belief that it would prevent their children from indulging in alcohol abuse (Wechsler, Henry and Toben 986). However the fact remains that the law is bound to be broken by the young people as it has happened in the past. The public health agencies are also involved in the support of the age limit of 21 years but some differences have resulted among this group based on the effectiveness of the government legislation on drinking among the young people. The health hazard caused by drinking and the social implication of drinking has been used to justify the support of the law by the proponents of the 21 year legal limit on drinking. On the other hand, the psychological point of view of the current regulatory policy on drinking demonstrates that the current law may facilitate the consumption of alcohol by underage individuals (Fromme, Kim, Reagan, and Dan 21). This is in support of the stand of some groups of college administration because it has been noted that since the enactment of the alcohol control policy on the youth, the use of alcohol by underage college students has not decreased.

    The most studied alcohol control policy is the legal minimum age for drinking which would be attributed for the differences in the United States on whether it should be reduced to 18 years. However it is important to note that the common ground of all stakeholders on the drinking problem among the underage is that it has negative implication on the young people and the society in general. There is no group that advocates for abolition of the alcohol control policy because of the health implication of alcohol in addition to the negative impact of drug use on academic performance and social life of the youth. The differences which result to the debates on alcohol regulation among the youth are caused by the practicality of the policy. This is due to the fact that the incidences of drinking among the underage youth in the United States are increasing despite the legal limit of the drinking age (Toomey, Traci, Toben, Nelson and Kathleen 961).

    The implications of the debates on the alcohol control act may eventually lead to the review of the minimum legal drinking age. Since some states have in the past tabled bills on the reduction of the minimum legal drinking age to 18 years, it shows that persistent of the debates on this issue would most likely promote the amendment of the alcohol control policy. However the health sector generally views the alcohol use as a societal problem in general which needs immediate intervention to curb the increased addition rates to substance abuse. This is demonstrated by the many number of American youth who are admitted to rehabilitation centers every year (Miron and Tetelbaum 325). The opinion of the health agencies are likely to be influential more leading to maintenance of the federal policy on the 21 age limit as the minimum requirement for drinking.

    Conclusion

    The relationship between the legal control of underage drinking and the rate of drinking among people below 21 years in the United States beats logic because it shows that the alcohol control policy has not been effective in protecting the youth from addictive substances. The concern of the law enforcement as one of the stakeholders of the youth affairs is that the availability of alcohol would lead to continues abuse of addictive drinks despite the regulatory policy. However, parents of the adolescents who alcohol control policy aims to protect support the policy due to their parental responsibility and concern for their children despite the opposition of the current policy by some groups of school administration and organizations. The debate on the minimum age limit for drinking may thus lead to amendment of the control policy despite the support for the current policy by the law enforcement and the stakeholders within the health sector.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    References

    Carpenter, Christopher, and Carlos Dobkin, 2011. “The Minimum Legal Drinking Age And

    Public Health.” Journal Of Economic Perspectives 25.2 (2011): 133-156.

    Carroll, Joseph, 2007. “Most Americans Oppose Lowering Legal Drinking Age To 18

    Nationwide: Six In 10 Americans Support Stricter Penalties For Underage Drinking.” Gallup Poll Briefing (2007): 4-7

    Fromme, Kim, Reagan R. Wetherill, and Dan J. Neal, 2010. “Turning 21 And The Associated

    Changes In Drinking And Driving After Drinking Among College Students.” Journal

    Of American College Health 59.1 (2010): 21-27

    Gerard  J., 2007. “Should We Raise The Age Of Legal Drinking?.” Public Policy

    Research 14.1 (2007): 31-35.

    Miron, J, & Tetelbaum, E, 2009, ‘DOES THE MINIMUM LEGAL DRINKING AGE SAVE

    LIVES?’, Economic Inquiry, 47, 2, pp. 317-336,

    Rossow, Ingeborg, Thomas Karlsson, and Kirsimarja Raitasalo, 2008. “Old Enough For A

    Beer? Compliance With Minimum Legal Age For Alcohol Purchases In Monopoly And Other Off-Premise Outlets In Finland And Norway.” Addiction 103.9 (2008): 468-473

    Toomey, Traci L., Toben F. Nelson, and Kathleen M. Lenk, 2009. “The Age-21 Minimum

    Legal Drinking Age: A Case Study Linking Past And Current Debates.” Addiction 104.12 (2009): 958-965.

    Wechsler, Henry, and Toben F. Nelson, 2010. “Will Increasing Alcohol Availability By

    Lowering The Minimum Legal Drinking Age Decrease Drinking And Related Consequences Among Youths?.” American Journal Of Public Health 100.6 (2010): 986-992

     

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