Beneficiary principle
Introduction
The beneficiary principle holds that property must be held on trust for identified beneficiaries or objects.[1] The principle stems from Morice v Bishop of Durham, where the court held that the trust for purposes was invalid.[2] In that case, Lord Eldon LC pointed out that a valid trust suggests that its subject and objects can be ascertained.[3] The term ‘object’ refers to beneficiaries of trust.[4] There are, however, some exceptions from the beneficiary principle. The current paper briefly overviews the exceptions and discusses the beneficiary principle in the context of unincorporated associations.
Exceptions to the Beneficiary Principle
In Re Endacott, it was held that in general no-charitable purposes trusts without identifiable beneficiaries are not valid.[5] At the same time, the court conceded that there may be some exceptions to the rule. The court articulated the exceptions as follows: (1) trusts for erection and maintenance of graves and monuments; (2) trusts for the celebration of the Masses, where such masses are not viewed as charitable; (3) trusts for the maintenance of animals; (4) trusts for the benefit of unincorporated associations; (5) trusts for miscellaneous purposes.[6] In that case, the court opined that the scope of these cases ‘ought not to be extended’.[7] In other words, the court expressed the reluctance to introduce new kinds of exceptions to the beneficiary principle.
Unincorporated Associations
Definition of Unincorporated Association
As it has been mentioned earlier, one of the exceptions to the beneficiary principle is trusts made for the benefit of unincorporated associations. An unincorporated association refers to
‘two or more persons bound together for one or more common purposes, not being business purposes, by mutual undertakings, each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and upon what terms and which can be joined or left at will’.[8]
From this definition, one may discern several criteria, according to which an entity can be identified as an unincorporated association. First, there must be more than one member. Second, members are bound by a common goal, other than business goal. Third, members have mutual obligations and duties. Fourth, an association must have its own rules. Fifth, the rules of association must determine who controls it and who disposes of its funds. Sixth, must determine the terms upon which the funds can be joined or left at will. Agreement between the members of an association constitutes the basis for membership.[9]
How Do Unincorporated Associations Hold Property?
- Trust for Purposes
Unlike companies, unincorporated associations do not have legal personality.[10] Therefore, they cannot own property.[11]There are four main methods allowing unincorporated associations to hold property. The first method is trust for purposes, whether charitable or not. In Neville Estates Ltd v Madden, the court pointed out that an unincorporated association may hold property on trust for or applied for the purposes of the association as a quasi-corporate body provided that the association is a charitable body, and such holding is foreseen by the rules of the association, or can be ascertained either from the terms of the association or from the surrounding circumstances.[12] One should pay attention that the court did not limit its observation to charitable purposes. The court only highlighted that the association itself must be a charitable body. Hence, it follows from Neville Estates that an unincorporated association that is a charitable body can hold property on trust for purposes other than charitable ones. The principle was reaffirmed in Re Denley, in which it was held that when a trust for a purpose, other than a charitable one, directly or indirectly benefits individuals, it can be valid.[13]
- Trust for Individual Members
The second method is allowing the current members of the association to hold property on trust. The reasoning in Leahy v Attorney-General for New South Wales suggests that trust for the present members of the association can be upheld when: (1) the wording must express that trust is given for the benefit of individual members; (2) the trust must be absolute in quality of estate and in freedom from restriction; (3) the property which is the subject matter of the trust must be amenable.[14]
- Trust for Joint Tenants
The third method is holding property on trust as joint tenants. The situation of joint tenancy arises when there is more than one trustee entitled to hold the property.[15] In the context of unincorporated association, the trust vested in joint tenants is upheld when the trust is absolute and when any member can separate his share.[16] The difference between holding a trust as individual members of an unincorporated association and holding a trust as joint tenants is that in the former case members cannot sever their share.[17] When a trust is vested in individual members, upon death of one of the members his trust property will accrue to the remaining members, even if among them there are persons who became members after the trust took effect.[18]
- Contract Holding
The forth method is holding trust property in accordance with contractual arrangements between members. A “contract holding” trust occurs when individual members of an unincorporated association own its assets subject to the contractual obligations owed by them to each other.[19]
The contract holding theory was meticulously articulated in Hanchett-Stamford v Attorney General. In that case, the issue was what should be done with the association’s assets. In 1914, the Performing and Captive Animals Defence League was established.[20] Before 1934, the League had a constitution, which then was lost.[21] At the 1934 annual general meeting, the members decided to eliminate the executive committee and to appoint a Director of the League, who was entitled to establish an advisory committee.[22] It was not clear whether at the meeting the members decided to repeal the constitution.[23] The object of the League was to fight against performance that involved cruelty to animals and the infliction of animal cruelty in the production of animal films.[24] In 1962, there were around 250 members in the League.[25] There were two categories of members: life members and annual members.[26] Mr and Mrs Hanchett-Stamford became life members of the League in the mid-1960s.[27] They were relatively active members.[28] By 1970, the activities of the League dwindled.[29] Mr Hanchett-Stamford assumed effective control over the League assets.[30] In the 1990s, it was decided to buy property.[31] The property was registered in the name of Mr Hancehett- Stamford and Mr Hervey (another member of the League) as trustees for the League.[32] By 2006, both owners were dead. Apart from the property, the League assets consisted of stocks and shares of £1.77 million value.[33] The only surviving member of the League was Mrs Hanchett-Stamford, who sought to make sure the League assets should be transferred to the Born Free Foundation.[34] It was alleged that it was a long standing desire of the Mr and Mrs Hanchett-Stamford.[35]
The main issue before the court was whether the League was a charity and if so what should become of its assets.[36] The court held that the League was not a charity since its purpose was to change the law so as to address cruelty against animals.[37] Furthermore, the court held that the League property was held on trust by its individual members in accordance to contractual arrangements between them.[38] The court explained that because of the trust is of “contract holding” nature, upon dissolution of the unincorporated association, members at the time are entitled to the assets free from any such contractual restrictions.[39] Thereby the court drew the contract holding theory closer the concept of joint tenancy.[40] Lewison LJ, acknowledging that contractual holding is ‘not a joint tenancy according to the classical model’, nevertheless pointed out that because collective ownership is a type of joint tenancy, contractual holding also must be a species of joint tenancy.[41] It follows then that Hanchett-Stamford equates the contract holding concept to a form of joint tenancy. Based on this view, the court held that upon the dissolution of an unincorporated association the members have a beneficial interest in its property. Therefore, it was held that the League assets must be devolved to the last surviving member, Mrs Hanchett-Stamford.[42]
In Hanchett-Stamford, the court briefly addressed the issue of devolving of the association’s assets to the Crown in case of its dissolution. Lewison J opined that when an unincorporated association is reduced to the last member, it is assets should not pass to the Crown by way of bona vacantia.[43] He drew attention to the provision of the European Convention of Human Rights (ECHR) which prohibits depriving an individual of his possessions, except in the public interest.[44] He opined that deprivation of one or two members of an unincorporated association of share in the association’s assets by the reason of death of other members would be a violation of the provision of the ECHR.[45] He also explained that it was hard to see any public interest in appropriation of the association’s assets.[46]
Conclusion
The beneficiary principle holds that trust must benefit identifiable individuals. There are some exceptions from the principle. One of the exceptions is that trust can be vested in unincorporated associations. There are four methods to enable unincorporated associations to hold trust property: (1) trust for purposes; (2) trust for individual members; (3) trust for joint tenants; (4) contract holding trust. Decision in Hanchett-Stamford suggests that the contract holding trust must be viewed as specific form of a joint tenancy. The effect of this rule is that upon dissolution of an unincorporated association, its assets are devolved to the surviving members.
Bibliography
Books:
Virgo, Graham, The Principles of Equity and Trusts (OUP 2012)
Cases:
Conservative and Unionist Central Office v Burrell (HM Inspector of Taxes) [1981] EWCA Civ 2
Hanchett-Stamford v Attorney General & Ors [2008] EWHC 330
Hunt v McLaren [2006] EWHC 2386
Knight v Knight (1840) 3 Beav 148
Leahy v Attorney-General for New South Wales [1959] HCA 20
Morice v Bishop of Durham [1805] EWHC Ch J80
Neville Estates Ltd v Madden [1962] Ch 832
Re Denley’s Trust Deed [1969] 1 Ch 373
Re Endacott [1960] Ch 232
[1] Graham Virgo, The Principles of Equity and Trusts, 115
[2]Morice v Bishop of Durham [1805] EWHC Ch J80
[3] Ibid
[4] Knight v Knight (1840) 3 Beav 148
[5] Re Endacott [1960] Ch 232
[6] Ibid
[7] Ibid
[8] Conservative and Unionist Central Office v Burrell (HM Inspector of Taxes) [1981] EWCA Civ 2
[9] Ibid
[10] Virgo (n 1), 225
[11] Ibid
[12] Neville Estates Ltd v Madden [1962] Ch 832
[13] Re Denley’s Trust Deed [1969] 1 Ch 373
[14] Leahy v Attorney-General for New South Wales [1959] HCA 20
[15] Virgo (n 1), 382
[16] Neville Estates (n 12)
[17] Hunt v McLaren [2006] EWHC 2386
[18] Ibid
[19] Ibid
[20] Hanchett-Stamford v Attorney General & Ors [2008] EWHC 330
[21] Ibid
[22] Ibid
[23] Ibid
[24] Ibid
[25] Ibid
[26] Ibid
[27] Ibid
[28] Ibid
[29] Ibid
[30] Ibid
[31] Ibid
[32] Ibid
[33] Ibid
[34] Ibid
[35] Ibid
[36] Ibid
[37] Ibid
[38] Ibid
[39] Ibid
[40] Ibid
[41] Ibid
[42] Ibid
[43] Ibid
[44] Ibid
[45] Ibid
[46] Ibid
