Critically evaluate whether judges in England have been too ready to employ the trust device to circumvent statutory formalities.

1. Critically assess whether the express trust is more appropriately characterised as ‘property’ or as a contract for the benefit of a third party.

2. Critically evaluate whether judges in England have been too ready to employ the trust device to circumvent statutory formalities.

3. The fiduciary obligation of loyalty, it is said, is necessarily stringent, unbending and harsh. What is the function of the strict fiduciary obligation of loyalty and should it be relaxed in cases of deserving fiduciaries?

Example Answer

Answer to 1st Question

To critically assess whether an express trust is more appropriately characterised as ‘property’ or as a contract for the benefit of a third party, it is essential to examine the fundamental principles and legal nature of both trusts and contracts.

The Express Trust as Property

The express trust is primarily viewed as a property-based mechanism in English law. It is a legal relationship where one party (the trustee) holds property for the benefit of another (the beneficiary), as established by the settlor. The trustee has legal title to the property, while the beneficiary holds equitable title. This division of legal and equitable ownership is a key feature of the trust, distinguishing it from contractual relationships.

The property characterisation is reinforced by the fact that the trust property must exist for the trust to be valid. Without an identifiable subject matter, there can be no trust. Additionally, the trustees` duties are not grounded in the consent of the beneficiary but rather in the legal obligations to manage the property for the beneficiaries’ benefit, regardless of any agreement between the parties. This makes the trust fundamentally about the stewardship and division of property interests, rather than mutual promises, as would be the case in a contract.

The Express Trust as a Contract for the Benefit of a Third Party

On the other hand, some aspects of an express trust could be argued to resemble a contract for the benefit of a third party. In a contract, parties agree to certain obligations, which may involve benefits conferred upon a third party, who is not a party to the contract but may enforce the terms under certain circumstances, as permitted by the Contracts (Rights of Third Parties) Act 1999.

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Answer to 2nd Question

In critically evaluating whether judges in England have been too ready to employ the trust device to circumvent statutory formalities, it is important to consider the balance between judicial discretion and statutory intent.

The Role of Statutory Formalities

Statutory formalities exist in various areas of law, including land transactions and wills, to provide clarity, prevent fraud, and ensure that significant legal actions are taken with proper deliberation. For instance, under the Law of Property Act 1925, transfers of land must comply with certain formal requirements, such as being in writing. Similarly, the Wills Act 1837 sets out formalities for the execution of wills.

The Judicial Use of Trusts

Judges in England have, on occasion, used the trust device to circumvent these formalities. One prominent example is the use of constructive trusts and resulting trusts. In cases where statutory formalities have not been complied with, judges have sometimes found that a constructive trust arises to give effect to the underlying intention of the parties or to prevent unjust enrichment. For instance, in the case of Rochefoucauld v Boustead (1897), a trust was imposed to prevent a party from relying on the lack of formalities to deny the existence of a trust, based on the principle that equity will not allow a statute to be used as an instrument of fraud.

Judicial Activism vs. Statutory Intent

Critics argue that judges have been too ready to employ trusts in ways that undermine the purpose of statutory formalities. By doing so, they may blur the line between legislative intent and equitable intervention. If courts frequently bypass statutory requirements, it could be argued that this undermines the certainty and predictability that such formalities are meant to provide.

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Answer to Question 3

The fiduciary obligation of loyalty is indeed considered stringent, unbending, and harsh, with its primary function being the protection of the beneficiaries or principals from potential abuses of power by fiduciaries. This obligation is central to the fiduciary relationship, which arises in situations where one party is entrusted with responsibilities that affect the interests of another, such as trustees, company directors, or solicitors.

Function of the Fiduciary Obligation of Loyalty

The strict nature of the fiduciary obligation of loyalty serves several essential functions:

1. Preventing Conflicts of Interest: The core of the fiduciary duty is to avoid conflicts between the fiduciary’s personal interests and those of the beneficiary. The stringent standard ensures that fiduciaries cannot place themselves in a position where their duty to the beneficiary is compromised by personal gain or conflicting loyalties.

2. Protecting Vulnerable Parties: Beneficiaries are often in a vulnerable position, relying on the fiduciary’s expertise or control over assets. The strict nature of the obligation provides a safeguard against exploitation, ensuring fiduciaries act in the best interests of those they serve.

3. Promoting Trust and Confidence: The harshness of the obligation fosters trust in fiduciary relationships. The knowledge that fiduciaries must act solely in the interests of the beneficiaries strengthens the integrity of such relationships and promotes confidence in systems such as trusts, companies, or legal representation.

4. Deterring Misconduct: The uncompromising nature of the duty acts as a deterrent to potential misconduct. Fiduciaries know that any deviation from their duty of loyalty, however slight, may result in serious legal consequences, such as disgorgement of profits or personal liability for losses.