Commonwealth Caribbean Law of Trusts

Third Edition

Gilbert Kodilinye, Trevor Carmichael

• Publisher: Routledge-Cavendish
• Year: 2014
• Print ISBN: 9780415622257
• eBook ISBN: 9781136279317
• Edition: 3
• Topic: Law
• Subtopic: Civil Law
• Index: Law

The law of trusts is a subject of considerable importance in the Commonwealth Caribbean. Traditional areas, such as testamentary trusts, resulting and constructive trusts, and charitable trusts, are now fully incorporated into the mainstream substantive law of the region, while the principles associated with offshore trust regimes are constantly expanding and developing. This book has been updated to reflect new case law and legislation, and to highlight recent trends relating to both traditional and offshore trusts.

CHAPTER 1

DEVELOPMENT AND NATURE OF TRUSTS

THE USE

The law of trusts was developed by the Court of Chancery in England from medieval times. The medieval forerunner of the trust was the ‘use’, which arose whenever land was conveyed to A on A’s undertaking to hold it to the use and benefit of B. Instances where land might be conveyed to A to the use of B were:

(a) where B, the beneficial owner of land, was about to go abroad on a crusade, it would be necessary for the land to be held by another person on his behalf, who would perform and receive feudal services;

(b) where B was a community of Franciscan friars who were prohibited by their vows of poverty from holding property; and

(c) where B was afraid of forfeiting his land on account of conviction for a felony, or of losing it to his creditors.

Whatever the purpose for which a use was created, the common law did not recognise any rights in B at all, but regarded A, the holder of the legal title, as alone beneficially entitled. Therefore, if A brought an action at law, his legal title and with it his right to possession would be upheld. The Court of Chancery, on the other hand, regarded it as unconscionable that B should be excluded and, although it would not deny A’s legal title, it would act in personam against A by issuing a ‘common injunction’ restraining A from enforcing or exercising his legal right. Failure to obey such an injunction would be punishable by imprisonment for contempt of court. By this method, the Court of Chancery would ensure that the rights of B, the equitable owner (or cestui que use) would prevail over those of A, the legal owner (or feoffee to uses).

Employment of the use in medieval times made it possible to avoid some of the burdensome feudal incidents to which the holder of the legal estate was subjected. For instance, under feudal law the lord was entitled to a substantial payment (called ‘relief’) when an heir succeeded to feudal land; and if there was no heir, he was entitled to recover the land absolutely (called ‘escheat’). Such consequences could be avoided if the land were vested in a number of feoffees to uses, for they were unlikely to die together or without heirs, and those who died could be replaced. Again, where land was held by a minor tenant, the lord had the right to choose his marriage partner (the incident of ‘marriage’); and if the tenant refused the person chosen, he was liable to pay a fine to the lord. Where land was vested in a number of adult feoffees to uses, the lord would be denied these rights. Lastly, it was possible to avoid the common law rule that freehold land could not be devised by will, by vesting the land in feoffees and declaring the uses upon which the land was to be held after the testator’s death. By this method, effective dispositions of equitable interests in land could be made on death.

The Statute of Uses 1535

The system of uses was clearly beneficial to tenants who had no tenants of their own, but it was obviously disadvantageous to the lords, and most of all to the person at the top of the feudal pyramid—the king. Henry VIII found that the royal revenues were being lost on a large scale, so he attempted to destroy the system by the Statute of Uses 1535. This Act provided, in effect, that where land was held by A ‘to the use of B’, A was to drop out of the picture and B was to have the legal estate. The use was said to be ‘executed’. The statute succeeded in abolishing most uses, but there were cases to which the statute did not apply, for instance, where the feoffees to uses had active duties to perform. Thus, for example, if the feoffees had a duty to sell land held upon use or to collect the rents and profits, the statute would not apply and the use would take effect as before.

It was not long before a way of circumventing the Statute of Uses was found. This involved the clumsy but ingenious device of the ‘use upon a use’. For example, where land was given ‘to A and his heirs, to the use of B and his heirs, to the use of C and his heirs’, it had been decided before 1535 that in such a disposition C took nothing; A had the legal fee simple, B the equitable fee simple, but the limitation to C was repugnant to B’s interest and therefore void. After 1535, the second use would still be held void, but the first use would be ‘executed’ so as to give B the legal fee simple and leave A, like C, with nothing at all. Eventually, by about the middle of the 17 th century, and by a series of developments that are shrouded in mystery, the Chancellor began to enforce the second use, which came to be called a ‘trust’. In order to create such a trust, the accepted form of words was: ‘… unto and to the use of B and his heirs in trust for C and his heirs.’ B took the legal fee simple at common law, but the use in his favour prevented the second use from being executed, leaving it to be enforced in equity as a trust. The result was to restore dual ownership: B was the legal owner and C the equitable owner. The legislature did not attempt to prevent this evasion of the Statute of Uses since, by the end of the 17th century, the importance of feudal revenues had greatly diminished and there was little point in the Crown’s seeking to prevent the development of trusts.

Reception in the Caribbean

The law of trusts has been received into Commonwealth Caribbean jurisdictions as part of the law of England. The method of reception has varied from one territory to another, principally according to whether the particular territory was subject to settlement or to conquest or cession.¹ In the case of settled colonies,² the British subjects who settled there were deemed to have taken English law with them and there was no need for statutory provisions expressly receiving common law or equity into those territories. In the case of conquered or ceded colo-nies,³ on the other hand, the law in force at the time of cession or conquest remained in force until altered by or under the authority of the sovereign. In the latter class of territory, English law would not generally apply without statutory reception provisions.⁴ The modern position is that the superior courts in Commonwealth Caribbean jurisdictions are empowered by statute to apply principles of common law and equity (including the law of trusts) concurrently.⁵

DEFINITION OF TRUSTS

A trust may be defined as: ‘… An equitable obligation binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property), for the benefit of persons (who are called beneficiaries or cestuis que trust), of whom he may himself be one, and any one of which may enforce the obligation. Any act or neglect on the part of a trustee which is not authorised or excused by the terms of the trust instrument, or by law, is called a breach of trust.’⁶

NATURE OF TRUSTS

The main characteristic of a trust is that the trust property is vested in the trustees not for their own benefit, but for the benefit of the beneficiaries. Instead of giving the property directly to the beneficiaries, the donor’s purpose may be more effectively carried out by appointing trustees, who will not only safeguard the property and apply it in the manner directed by the trust instrument, but will also make it productive, for example, in the case of land by letting it, or, in the case of money by investing it in shares or securities. Thus, in most cases, trustees are not merely passive custodians of the trust property but active business-people, responsible for ensuring that the property bears as much fruit as possible for the beneficiaries.

One question that may arise is whether the trustees or the beneficiaries are to be treated as the ‘real’ owners of the trust property. The answer will depend upon the circumstances. In Schalit v Joseph Nudler Ltd,⁷ for instance, it was held that where premises forming part of the trust estate are let to a tenant, only the trustees, as legal owners, are entitled to levy distress against the tenant for arrears of rent; the beneficiaries, being merely equitable owners, cannot do so. The beneficiaries’ only remedy is to compel the trustees to render an account of profits received. On the other hand, it is clear from Baker v Archer-Shee,⁸ that it is the beneficiaries, not the trustees, who are primarily liable for the payment of income tax from trust investments. As Ross JA explained in the Jamaican Court of Appeal in Commissioner of Income Tax v Bank of Nova Scotia Trust Co Ltd:⁹

Although the legal estate in the trust property is vested in the trustees, it must be remembered that the beneficial ownership is in the beneficiaries, and so the trustees act as a conduit pipe to convey the trust income to the beneficiaries.

One of the great advantages of the trust is its flexibility. The trust can be used for a wide variety of purposes, such as:

(a) to control the destination of family property on death; for example, where a testator bequeaths property upon trust for his widow for life, and thereafter for his children in equal shares;

(b) to protect family property from spendthrifts, by the establishment of a ‘protective trust’;

(c) to enable two or more persons to own land. In some jurisdictions, where there is beneficial co-ownership of land, a statutory trust for sale arises;

(d) to facilitate investment through unit trusts;

(e) to benefit charitable institutions, such as schools, universities, hospitals and churches;

(f) to make provision for a non-charitable purpose, such as the upkeep of the testator’s tomb or his animals;

(g) to provide pensions for retired employees and their dependants. Under such pension schemes, the funds will be vested in trustees and administered by a board of management;

(h) to enable property to be held for minors, who may not be capable of holding a legal estate;

(i) to establish beneficial interests in matrimonial and family property; and

(j) to avoid or minimise taxation.

TRUSTS DISTINGUISHED FROM OTHER LEGAL RELATIONSHIPS

The characteristics of trusts are perhaps best understood by comparing them with other legal relationships, such as bailment, agency, contract, debt, powers and administration of estates.

Trusts distinguished from bailment

Bailment arises where a chattel ow...

Table of contents

• Cover
• Half Title
• Commonwealth Caribbean Law Series
• Title Page
• Copyright Page
• Table of Contents
• Foreword
• Preface
• Table of Cases
• Table of Statutes
• 1 Development and Nature of Trusts
• 2 Formalities for the Creation of Trusts
• 3 The Three Certainties
• 4 Constitution of Trusts
• 5 Secret Trusts and Mutual Wills
• 6 Resulting Trusts
• 7 Constructive Trusts
• 8 Non-Charitable Purpose Trusts
• 9 Charitable Trusts
• 10 Appointment, Retirement and Removal of Trustees
• 11 Duties of Trustees
• 12 Powers of Trustees
• 13 Variation of Trusts
• 14 Remedies for Breach of Trust
• 15 Offshore Trust Derivatives and Affiliates
• 16 Settlor Control, Forced Heirship and Asset Protection: Continuing Issues of the Offshore Trust Regime
• 17 Alternatives to the Offshore Trust: The Foundation
• 18 Confidentiality and the Regulation of Trust Activity
• 19 Trusts and Taxation
• Appendix 1 The Charities Act-Barbados
• Appendix 2 Know Your Customer Guidelines
• Appendix 3 Deed of Declaration of Trust (General)
• Appendix 4 Purpose Trust Deed
• Appendix 5 Unit Trust Deed
• Appendix 6 The Asset Protection Trust Deed
• Appendix 7 Declaration of Time of Division, Trusts, and Appointments
• Appendix 8 Restatement of Trust Agreement
• Appendix 9 Model Foundation Charter-Commonwealth of the Bahamas Foundation Charter
• Appendix 10 Oecd Agreement on Exchange of Information on Tax Matters
• Appendix 11 Anguilla Foundation Act, 2008
• Appendix 12 Revised Regulations of Anguilla: [ ]
• Index