TY - JOUR
AU - Qayyum,, Sham
AB - Abstract Over the past half century, the trust has undergone momentous change. A generation of Chancery practitioners reduced it from being a doctrine to a loophole. What, perhaps, many did not realise was that the changes would mostly be for the worse. Before explaining which aspects of the modern express trust trouble my conscience, I divide its history into Three Ages of the Trust. We now live in the Age of the Loophole Trust (1969–). To help us understand this latest stage, I utilise equity’s most venerable teaching aid – the maxim. My remarks are structured around three new (surreptitious) maxims. I. Introduction In 2020, as in 1630, entrants to the noble profession of Chancery practitioners need an easier introduction to its technical arcana. Law students soon learn to identify the grand themes that underpin Contract Law, Family Law and Tort Law, but they have difficulty with Equity and the Law of Trusts. One reason for this is because modern Chancery practice uses the trust as an adjunct to other legal institutions. The so-called ‘Quistclose trust’ is an adjunct to Banking Law, the business opportunity constructive trust is an adjunct to the contract of employment, and the private client business structure combines the express trust with the limited liability company. Prior to the 1970s the average practitioner at the Chancery Bar dealt with ‘wills and settlements and the contents of musty deed boxes’. Nowadays it is ‘something of a rarity’ to find an express trust being litigated. ‘Constructive trusts, on the other hand, are two a penny’.1 How are students to understand the trust as a free-standing institution when they so rarely encounter it? The standard Equity textbooks do not help, since they tend to introduce the student to Trust Law as it was in the 1930s. They write as if modern settlors still appointed a couple of human trustees to hold the legal title of the trust fund. They treat the settlor as if his functions are exhausted once he has constituted the trust. And they assume that typical beneficiaries have enforceable rights over the trust fund. If the eminent Hanbury, Pettit, and Hayton were to write a biology textbook, they would devote the opening chapter to creationism, and introduce Darwinian evolution surreptitiously through the occasional footnote and gnomic caveat. There must be a better way to teach students what the trust has become, rather than what it was ninety years ago. Perhaps equity's most venerable teaching aid, the maxim, can be utilised to introduce students to the latest stage in the evolution of the express trust. There must be a better way to teach students what the trust has become, rather than what it was ninety years ago. Perhaps equity's most venerable teaching aid, the maxim, can be utilised to introduce students to the latest stage in the evolution of the express trust The ‘better part of the law’, said Christopher St. German, consists of ‘various old general customs’ and ‘certain principles called maxims which also take effect by the old custom of the realm’.2 His Doctor and Student (1528–31), a book filled with legal maxims, was the first to pen an equitable maxim.3 Fifteen years later his work was adapted and expanded for law students in Principia sive Maxima Legum Angliae (1546).4 During the ensuing centuries Fulbeck, Noy, Fraunce, Finch, Bacon, and others published their own annotated collections of maxims to the ordinary law, not equity, to be used by law students as guides to common law practice.5 The greatest of these authors was Francis Bacon (1561–1626), who applied his methodological mastery to the maxims.6 It was not enough, he argued, simply to list the maxims, as Justinian’s compilers had done in the final section of the Compendium of Civil Law.7 If left in this form they are merely ‘short dark oracles’ whose sole virtue is to formulate a nugget of legal wisdom ‘in a concise and solid form of words’. Bacon recommends that we illustrate the core meaning of each maxim with ‘decisions of cases as are most clear’. Having grasped its central application, we should add ‘distinctions and exceptions’ (that is, cases where the maxim does not apply) and ‘kindred cases’ (that is, cases which resemble the maxim in some way, but are not exactly in point).8 Bacon’s approach was influential.9 In 1727, Richard Francis published the first original collection of maxims of equity.10 Through the 18th and early 19th centuries, textbooks on equity continued to be organised as precedents grouped around a particular maxim. It was in this form that equity spread to Britain’s colonies: the American founding fathers, for instance, learnt about Trust Law through such collections. The later 19th century saw a profound change. During the period of First Globalisation (1870–1914) textbook authors such as Frederick Pollock tried to shape their material to tell a more coherent story. The introductory chapters should describe what the legal institution concerned is, then explain the conditions under which it is created, then explain what happens when something goes wrong with it. Contemporary textbooks and university curricula tend to teach students that the maxim approach to equity is obsolescent. Occasionally, even today, a case will depend on how to apply a maxim. Re Baden’s Deed Trusts (No 1) [1970] turns on the maxim ‘equality is equity’.11 Tinsley v Milligan [1993] turns on the maxim: whomsoever applies to Chancery must do so with clean hands.12 In T Choithram International SA v Pagarani [2001] a maxim was qualified: although equity will not assist a volunteer,13 it will not strive officiously to defeat a gift.14 On these occasions it seems, judges and commentators alike feel the need to apologise for their archaism. If archaism is the problem, then why not coin some new maxims? Since law students need an introduction to the modern trust, why not give them some maxims that provide it? Roscoe Pound noticed that when maxims are put into Latin, they acquire the ‘guineau stamp of antiquity’: the proverbial form that makes them seem the formulated wisdom of centuries.15 There’s a challenge. My following remarks are structured around three new (surreptitious) maxims: (1) dominium tenebricosium esto, (2) quis tutelam habet est gratiosus aequtatis, (3) fiduciam gubernare possunt, et dona ferentes.16 II. Three ages of the trust I have alluded so far to ‘what the trust has become’ and to the actions of ‘modern’ settlors, trustees and beneficiaries. I can best explain which aspects of the modern trust trouble my conscience by dividing its history into Three Ages of the Trust. My periodisation starts with The Age of the Use and of its Statute (1400 –1670). Lord Nottingham inaugurated and Lord Wilberforce ended The Age of the Split Ownership Trust (1671–1968). We now live in The Age of the Loophole Trust (1969 –). 1. The age of the use and of its statute Following their conquest of England in 1066, it is generally accepted by legal historians that Norman kings imposed a system of feudalism overseen by honorial and royal courts, likely without loopholes or local exceptions.17 Two centuries later the use on a fee (a special interest in land) was invented.18 Likely, by an anonymous wealth advisor. He did so by reconceptualising ownership into three separable sub-units of title, control and enjoyment. The use allowed different people to own the three slices of ownership. Legal historians seem now to be agreed that uses did not begin as a tax dodge. They took off in the 14th century as a means of leaving land by will, to promote collective family ownerships, and intergenerational control of resources. Had they not been so useful, the effect on feudal revenue might have been tackled much earlier (as was, for example, the use to evade Mortmain legislation). At the time land could not be conveyed by will for two reasons: it was antithetical to the right granted as a fee simple (which declared the land was granted to someone and his heirs – not his choice of successor); and, the absence of any remedies (via Chancery writs) to enforce testamentary succession. Nonetheless, if done in the right way, the use enabled the landowner to acquire new powers over the land and he could avoid certain feudal payments to the king. ‘You’ve only created a use to save on taxes’ said the king. ‘No’ replied the landowner, ‘I created the use to give myself more choice over who shall get the land when I’m dead’. We can note that wherever this mixture of motives is found, it will be difficult to distinguish between tax avoidance from tax evasion. The use, in modern parlance, combined tax efficiency with a more sophisticated ownership structure. Those who opposed the development said that ‘sophistication’ was a synonym for unreality.19 As Fitzherbert J. put it in 1535: A use is not a right … for it is an inconvenience and an impossibility in law, that two men severally should have several rights and fee-simples in one and the same land simul and semel.20 Fitzherbert J’s implied question – how can legal and equitable ownership coexist? – continues to worry continental lawyers and a few common lawyers.21 It must have been asked more vehemently in the years around 1300 when the use was first proposed. Unfortunately, 14th century sources are too sparse to tell us what arguments were deployed to make the use acceptable. We do know however that this happened in 1401 when Prince Hal said it was ‘expressly against the law’ to ignore the oral condition of a feoffment.22 By then the chancellor had recognised the implied use: where A enfeoffs B and C gratuitously, intending to set up uses at a later date, B and C must hold the land for A in the meantime. This was a crucial step. Validating a deliberately structured dodge is one thing, implying a dodge where it has not been spelt out is quite another. In the absence of evidence as to why the use became acceptable, let us try and guess. Although in S.F.C. Milsom’s view we are wrong to talk of the (Court of) Chancery recognising the use: a more accurate picture, he insists, is that the Chancery (and ultimately, therefore, equity) was created by the recognition of the use.23 We can also look at it in this way: until the use was fully recognised a landowner using this technique could potentially hide the land’s real ownership from the king, but he was unable to call on the king’s protection if someone cheated him. The chancellor’s compromise offered the landowner more safety but less secrecy: he, as the king’s first minister, would protect the use against cheats, but the king would thereby learn, from his first minister, who is entitled to what.24 Then in 1535, Henry VIII tried to close-down the use loophole with his Statute of Uses, passed in 1536, but ended up inaugurating the next conveyancing revolution. The preamble describes uses as ‘divers and sundry imaginations, subtle inventions, and practices of fraudulent feoffments and other assurances craftily made’.25 Hence, the Statute aimed to cut through such sham transactions by ‘executing the use’, that is, by regarding the equitable owner as the legal owner.26 That should have been that: a strong king had forced through a new conveyancing deal which brought more money into his exchequer. As a barrister put it almost ninety years later: ... the use is somewhat clogged, that it cannot dance up and down at all times so lightly as it could before it was clogged with the estate ...27 But, as every undergraduate student should know, that was not that. By the end of the 16th century the Chancery recognised a loophole, the use upon a use, which was potentially large enough to bypass the entire Statute. The loophole oddly enough worked by sticking the two uses together and claimed that the Statute only affected the first. The argument seems to be on a par with: ‘I told you not to eat my chocolate!’ ‘I didn’t. I ate both of your chocolates. You didn’t forbid that’.28 The extent of the new loophole remained controversial for well over a century.29 Nicholas Bacon upheld it as early as 1559 in an asset protection context.30 In Chudleigh’s Case [1595],31 Edward Coke and Francis Bacon argued on the same side for its recognition, though their emphases were different. Bacon was of the view that uses were different from legal estates. In other words, one way to put his disagreement with Coke is that Bacon was working towards what we now call equitable ownership. He defended the position that the Chancery would uphold a use upon a use, in cases where conscience demands it, provided that this does not cut across the Statute’s policy of preventing revenue evasion through secret dealings in land.32 Giving an Inns of Court reading on the Statute of Uses in 1600, he used woodland imagery to describe the prevalence of the arrangement: though the forester had tried to cut the tree down, he had merely pollarded it. There has been: … a second spring of this tree of uses since the statute, after it was lopped and ordered.33 Coke had a civilian view of ownership: he believed the law defines and protects a strictly limited list (a numerus clausus) of interests. The beneficiary, he insisted, had a chose in action, not an ius in re. He devoted his Inner Temple reading to uses in 1592. The big question was whether, if uses were turned into legal estates by the Statute, they should now conform to the common-law rules. If they didn’t it would let in perpetuities. Coke’s campaign against perpetuity clauses, resting on contingent uses, ultimately succeeded. English legal history in respect of the development of equitable ownership has followed Bacon rather than Coke: the resultant spawn of various kinds of interests is what has given us the world of offshore trusts. In technical language the rise of offshore trusts is a new chapter in the history of conveyancing. The use on a fee and use upon a use were invented by 13th and 16th century lawyers to keep their client’s wealth secret and secure. The doubly offshore company and the offshore private trust are the 21st-century equivalents: technical inventions by specialists which conveniently achieve results useful to the client. The implied use is the ancestor of such modern conveyancer tools as the bare trust and nominee ownership. They are all at a slight tangent to reality. And they work by splitting ownership, as a non-technical, popular concept, up into smaller and smaller fragments. With the use, the cat-and-mouse game between wealth advisors helping clients seeking to avoid tax and the exchequer had begun. It was to become a big part of the Lincoln's Inn tradition. By 1670, the Statute of Uses had become a dead parrot. For positivists, this is a scandalous tale of how lawyers can prevail over the king-in-parliament’s will. For wealth advisors it is an inspirational tale of clever lawyers protecting the taxpayer from the demands of a rapacious state. 2. The age of split ownership Oliver Cromwell was sympathetic to reform, but explained in 1650 that he was constrained in what he could do by the wealth advising lobbyists: The sons of Zeruiah are yet too strong for us, and we cannot mention the reformation of the law but they presently cry out we design to destroy property; whereas the law as it is now constituted serves only to maintain the lawyers and encourage the rich to oppress the poor.34 Cromwell’s failure to reform property law was an important step towards the failure of his whole revolution.35 Nonetheless after the Restoration, something had to be done. In times of civil war, wealth gets taken at musket point, and its former owners will lie and cheat to recover their loss. It is hard to imagine dispossessed Cavaliers (or, after the Restoration, dispossessed Roundheads) feeling any pangs of conscience about the tactics by which they might recover their own land. A dishonest trustee could easily deny the oral trusts he had agreed to enforce. Conversely, an honest buyer of land dared not rely on apparently clear title deeds. In 1660, the Tenures Abolition Act abolished the burdensome incidents of feudal tenures. Then, the Chancery confirmed that where a ‘use upon a use’ was created, the second use would be enforced in equity.36 That, in effect, completely undid the Statute of Uses. Looking back from 1739 Lord Hardwicke explained: …by this means a statute made upon great consideration, introduced in a solemn and pompous manner, has had no other effect than to add, at most, three words to a conveyance.37 If Hardwicke sounds unworried by this development, it is because he could look back on sixty years of successful operation of the new conveyancing system introduced during the Restoration. It was now possible to create in trust form every interest that previously could only have existed as legal or ‘executed’ interests. John Barton notes that contemporary references up to 1660 usually qualified the word ‘trust’ with the word ‘secret’.38 When James I and Charles I were on the throne, tax planning devices were more likely to succeed if they left no paper for the king to follow. During the years of the English Republic (1649–60), the defeated royalists used secret machinations to protect their assets from Cromwell. All of these land-launderers were to be reminded of the golden rule of offshore transactions: the greater the secrecy, the less the security. A dishonest trustee could easily deny the oral trusts he had agreed to enforce. Conversely, an honest buyer of land dared not rely on apparently clear title deeds. By 1660, these problems were felt to have macro-economic implications: Since land was believed to be security for most loans, fraud and uncertainty of title were blamed for the shortage of cash, high interest rates and the decline of trade in general.39 King, parliament and gentry needed to make a deal that would allow “… the landed classes to secure their property without subjecting it to the organized and detailed scrutiny of the central government …”.40 Matthew Hale, Cromwell’s law reformer, sketched out the Chancery reforms that were necessary despite the Restoration. Heneage Finch (Lord Chancellor under the name Lord Nottingham 1673–82) enshrined the deal in the Statute of Frauds 1677 and Cook v Fountain [1676].41 It rejected proposals for a general Land Registry, allowing the gentry to keep their wealth hidden from the state.42 But it promoted security of title by requiring all transfers of land (wills apart) to be in writing and by providing landowners with incentives to enrol these documents in the court records. Lawyers and court clerks were to keep their lucrative perks for registering the deeds and searching the registers. The Chancery, for its part, promised to regularise the use upon a use (or trust as it was to be known henceforth). With one modification (the 1837 decision to make wills into registrable documents), this new conveyancing system lasted until the final victory of the registered land idea in 1925.43 Finch’s contemporaries must have wondered how stable the deal would turn out to be. The Statute of Uses had been undermined by the use on a use loophole: would the Statute of Frauds be undermined by the fraud on a statute loophole? What should the Chancery do in situations where a fraudster took advantage of the new conveyancing system to construct his scam? Thynn v Thynn [1684] 44 resolved these doubts by applying to the Statute of Frauds the solution Francis Bacon had advocated for the Statute of Uses: loopholes would only be used by those morally entitled to them. The Chancery would ignore the Statute, and ‘not allow the Statute of Frauds to be used as an engine of fraud’, only in those cases where the defendant’s actions were fraudulent or unconscionable. At the same time, Finch promoted the idea of split ownership: the idea that the beneficiaries of a trust held something called ‘equitable ownership’ and the trustees held the legal title to the trust fund. Equitable estate is one of Bacon’s middle axioms: it generalises from the behaviour of chancellors but it’s not a general maxim. Conveyancers use it as a convenience in describing what they’ve done to wealth, but that doesn’t prove that it exists. Chancellors learnt to deploy the language of equitable ownership in order to justify augmenting the common law of ownership. That is understandable since recognising such ownership was a necessary step before they moved to ‘rectify’ the conscience of the erring trustee. At this point, conveyancing takes on its wider meaning. The Glorious Revolution of 1688 settled the rivalry between James II and parliament over taxation. England got a Dutch king and a set of avant-garde Dutch credit institutions which created new title deeds to wealth. The choice was no longer between holding wealth as money (gold and silver coins) or as land (deeds enrolled in the court records). Once a debt had become as easily negotiable as a silver coin, and as easily provable as a fee simple in land, it became a form of property. This financial revolution, this defeat of money by credit, took place between c.1600 and 1750. At first the Chancery concentrated on the mortgage. By 1640, equity interpreted a mortgage transaction as land held in security for money lent. The equity of redemption is the name given to the Chancery’s protection of the borrowing landowner,45 which Henry Ballow explains in moral terms in 1737: to show favour to the moneylender “would be to let in all Manner of Extortion and Usury” (sic).46 Lord Mansfield gave a different rationale in 1780: To do justice between men, it is necessary to understand things as they really are, and construe instruments according to the intent of the parties.47 During the second half of the 17th century attention focused on to the negotiability of commercial paper. In 1668 Josiah Child, who ran the East India Company, was complaining that English law lagged behind Dutch law, which had managed to make their financial instruments negotiable and liquid: … this is of extraordinary advantage to them in their commerce; by means whereof they can turn their stocks, twice or thrice in trade, for once that we can in England.48 England found these arguments irresistible: The Royal Exchange was built in 1566, and specialist dealers in bills of exchange emerged, to improve the liquidity of paper. A statute of 169849 made bills of exchange negotiable; another of 1704 did the same for promissory notes.50 The Bank of England was founded in 1694 and with it the idea of long-term government debt. It sounds easy, but all previous attempts to set up a credit economy had failed. The English Revolution succeeded because English traders persuaded themselves that paper credit was as good as silver coin. Adam Smith, writing long after the revolution was won, argued paper was better than coins, which got clipped and tarnished when put in circulation. Smith famously envisaged an invisible hand guiding the market to balance between supply and demand. During the 17th century, it was rather a question of credit as an invisible purse from which new forms of money could be drawn at will. Credit was a loophole in the laws of supply and demand for precious metals. It was an arrangement, or ‘dodge’, that the law courts were willing to accept. But, as we have asked for the use, what was its ontological status?51 David Daube gives us a number of folktales, suggesting we might use such terms as mirror-money, to help us answer this, (as well as to think about the ethics of private client business).52 One of his examples includes the case of the prostitute and her client: ‘Wow, what a dream I had about you last night!’ said the regular client to his favourite prostitute. ‘You'll have to pay me for that dream’, she said. He replied ‘I’ll pay you by letting you look at my money through this mirror’.53 In what circumstances should we treat mirror-money as real money? This question was argued in the Chancery after the collapse of the South Sea Bubble. In 1721, Lord Macclesfield released a purchaser on forfeiting his deposit because the contract was inequitable by saying: … a court of equity ought to take notice under what a general delusion the nation was at the time when this contract was made … when there was thought to be more money in the nation than there really was, which induced people to put imaginary values in estates...54 This was a sign of what was to come – the question would be revisited again and again by our courts. In the 1980s, for example, our courts returned to the question: where money movements are entirely circular, Peter Millett pointed out in 1982, it is virtually impossible to distinguish between ‘real’ money and ‘funny’ money.55 1970s tax avoidance schemes, à la mode de Rossminster, relied on moving large amounts of funny money, in order to generate smaller amounts of capital gains loss. Millett’s elegant footnote is worth quoting in full: In Eilbeck v Rawling [1980] 2 ALL E.R. 12, in the Court of Appeal, counsel for the crown posed the question: “Can two penniless tramps on the Embankment lend each other 1 million?” (One lends the other £1 million, repayable on demand; the recipient promptly deposits the sum borrowed with the other on call. Is this a real transaction? Does it make any difference if cheques are exchanged? Does it make any difference if a messenger from a clearing bank, escorted by a policeman, brings a banker’s draft for £1 million, which is passed from hand to hand before being taken away again?). Templeman L.J. replied: “No, of course they can’t”; Donaldson L.J. replied “Yes, of course they can: that’s banking”. Such authority as there is supports Templeman L.J.: see Gray v Lewis (1873) 8 Ch. App. 1035.56 It is fascinating to see Templeman, the Chancery judge, disagreeing with Donaldson, the common law judge, on where the unreal credit and real money should be drawn. Where the line separating these concepts should be drawn can be just as much a question of morals as of economics. 3. The age of the loophole trust The new age shook off its attachments to the old-fashioned morality preached by Lord Eldon and embraced the new permissive age.57 The battle was joined in Austerity Britain in 1954, an age of high death duties. Basil Sabine describes the 1950s and 1960s as ‘the golden age of border line capital transactions and elaborate tax avoidance schemes’.58 This is when relations between the tax advisors and government became hostile.59 It was not just the government’s taxmen they wanted to beat but also the government’s regulators and investigators. Some Chancery practitioners persuaded some complaisant Chancery judges to surreptitiously change the terms of existing trusts in favour of the taxpayer.60 When other judges refused such applications, the veil of secrecy was lifted, and the Law Lords restored the old-fashioned morality in Chapman v Chapman [1954].61 Four years later Chapman was overruled by statute. Wealth advisors, it turned out, had powerful friends.62 The Variation of Trusts Act 1958, which had begun life as a private members bill, coincided with the birth of the Eurodollar market, which in effect deregulated any financial deal that was not purely domestic. The rise of offshore unregulated finance allowed wealth advisors to think about avoidance schemes that used offshore locations. By the 1970s, tax avoidance schemes blossomed, and the art of structuring a deal took on the trappings of a science. Rossminster had become synonymous with schemes that depended on moving large amounts of money from onshore to offshore and back again.63 Sometimes the scheme is tested by interpreting the scope of the tax statute,64 at other times it is tested by asking whether this form of packaging had bent the legal institution too far from normality.65 Academic comment on the revolution drew a sharp line between ‘tax oriented decisions’ such as Gartside v IRC 66 and trust law decisions, such as re Baden (no.1).67 Derek Davies characterised re Baden as ‘a remarkable change in direction’ which ‘did some equally remarkable things with the precedents’.68 In the Survey, Davies distinguished ‘tax-oriented decisions’ like Gartside from doctrinal trust cases like re Baden, while Jeffrey Hackney listed re Baden’s supposed advantages as ‘greater administrative convenience’ and ‘a more realistic view of intentions’.69 Davies said that it contained changes to be welcomed, but just as many problems.70 Hackney listed three disadvantages: doctrinal uncertainty, for as long as it took the law to settle down again, the violence which the new certainty test did to settlor’s express words, and the difficulties of overturning the precedents which had long underpinned trust law.71 Others embraced the revolution uncritically. James Harris referred to re Baden as an ‘important development’ to be ‘welcomed’.72 He noted the vigour with which the minority in Baden fought against the majority and attributed it to them holding a mistaken and outdated dogma about equitable ownership.73 Their ‘failure to analyse the concept of duty’ had played ‘havoc’ with the development of trusts.74 Harris proved this by a jurisprudential analysis that invoked Hohfeld and Bentham. Strip out these philosophical fripperies, and the core reason Harris welcomes re Baden is that it fits with ‘a dynamic analysis of law’. It builds into its concepts ‘the ways in which the law is likely to develop’. It ‘indicates how the courts are likely to concretise general, open-textured rules of equity and, perhaps, how these rules as general rules were formed, and are likely to be changed’.75 ‘The law must be moulded to make it possible to give effect to the modern employees’ trust, just as these things were done to give effect to the family discretionary trust.76 Yuri Grbich, then at the London School of Economics writing his thesis on discretionary trusts, acted as propagandist to the revolution. He denounced the minority judges in re Baden as ‘myopic’ authors with an ‘outdated frame of reference’. Lords Hodson and Guest had ‘fallen behind the evolving practice of trust law’. They were indulging ‘the luxury of nostalgia’. Their ‘conceptually moribund trust’ must be replaced by Lord Wilberforce’s ‘new trust obligation’. The re Baden majority succeeded in changing ‘the whole conceptual basis of this peculiarly British creation, the trust’.77 Reality has changed, and trust law must change with it. Grbich uses a medical metaphor: trust law is ‘the skin round a living and growing concept’.78 But this living thing around which trust law is wrapped must be the practice of the wealth advisors. The demands of the market, we might call it. In the first place the living thing is Lincoln’s Inn, meaning the accepted wisdom and practice of Chancery practitioners. But it expands to include the City of London and the Palace of Westminster. For Grbich, it was ‘revenue stimuli’ (the Treasury in Westminster) and ‘the practical necessity of business reality’ (the City) that together drove the changes in Lincoln’s Inn practice,79 which Lord Wilberforce then reflected in his doctrinal revolution. What he does not say is that Lincoln’s Inn sided wholeheartedly with the City against Westminster. Alone of those who wrote about re Baden (No 1), Grbich explained its relevance to avoidance schemes: ‘By keeping the rights of objects vague they are more difficult to tax’.80 Lord Wilberforce's new test for certainty of objects certainly kept things vague. Despite two further hearings (Re Baden (No 2) before Brightman J and the CA),81 the doctrine remains unclear to this day. Lord Wilberforce achieved a doctrinal revolution that petered out soon afterwards. The public remain baffled, but the wealth-advisors of Lincoln’s Inn got exactly what they wanted. Make a revolution then keep its results vague. Leave the loose ends untied. Then the profession has carte blanche to invent new schemes. Each of which can be launched with no more publicity than a QC giving his opinion. As Grbich put it, ‘a draftsman usually avoids giving finite interests to objects’.82 The wealth advising profession welcomed Re Baden into their hearts, as a good turn balancing the bad done to them by the Finance Act 1969, s.36 (2).83 The new trust-powers, said Harvey Cohen, were flexible enough to still ‘mitigate the estate duty’.84 They should be used whenever the settlor wishes to benefit a large number of people, or when he is head of a very large family, or when the fund he is constituting is the controlling shareholding of a private company. The trust-power contains one duty only: ‘to distribute the whole fund at the end of the selection period’. Until then, there are no ‘interests vested in interest’. No one, at present, has ‘a right, individually or collectively, to the trust fund itself’.85 Hiding behind doctrine, no one can have been in doubt as to the tax advantages of the new trust–power doctrine. Austin Scott, the great American authority on Trusts, almost half a century earlier put it like this: The trust has often served as a means of evading the law … The question with which courts of equity have been compelled to struggle is how far it is possible to go without crossing the line which separates the legitimate use of the trust device from an illegal evasion of the letter or the policy of the law.86 To help explain which aspects of the modern express trust trouble my conscience, I structure my following remarks around three new maxims that wealth advisors have been developing, in a surreptitious, secret manner. III. DOMINIUM TENEBRICOSIUM ESTO (let the ownership be clouded over) The passing of the Age of Split Ownership took place in 1969 when Lord Donovan persuaded Widgery L.J. to change his mind: I have found it very difficult to accept ... that the beneficial ownership can leave the vendor without simultaneously arriving in the purchaser … l have been persuaded [by Lord Donovan that the issue is not whether beneficial ownership has reached the purchaser, but whether the vendor has lost it].87 So, there we have it: let the ownership be clouded over. Legal title is too cut-and-dried to avoid paying tax,88 but it may be possible to create vagueness about the location of the equitable ownership. Chancery practitioners had three tricks up their sleeve: the discretionary trust, the accumulation and maintenance trust, and the widely drawn power of appointment. During the 1950s and 1960s, the alchemists of Lincoln’s Inn experimented on different blends of these three tricks, in hope of discovering the legendary orphan asset. An orphan asset is a trust asset which, for the time being at least, has no equitable owner. This metaphor suggests that the beneficiary is the parent of the asset. Some wealth advisors prefer a meteorological metaphor: like moisture suspended in rain clouds, the assets will one day fall as rain to be spent by some lucky beneficiary. Until they come out of suspension, we could call them Cloudy Assets. Legal title is too cut-and-dried to avoid paying tax, but it may be possible to create vagueness about the location of the equitable ownership. Chancery practitioners had three tricks up their sleeve: the discretionary trust, the accumulation and maintenance trust, and the widely drawn power of appointment Legal title is too cut-and-dried to avoid paying tax, but it may be possible to create vagueness about the location of the equitable ownership. Chancery practitioners had three tricks up their sleeve: the discretionary trust, the accumulation and maintenance trust, and the widely drawn power of appointment 1. The accumulation and maintenance trust The first device is the accumulation and maintenance trust. Statutes passed during the 20th century tidied up the powers and duties of trustees. Unless expressly excluded, every trust will have the s.31 Trustee Act 1925 powers of maintenance read into it. Every beneficiary ‘of what interest whatsoever, whether vested or contingent’ can, until he reaches 18, be given money from the income of the trust fund to pay for his ‘maintenance, education or benefit’. S.31(2) adds that otherwise the income must be accumulated until the beneficiary’s 18th birthday. This means the fund’s income is reinvested as capital, which means it earns compound, rather than simple, interest. S.31 blurs the sharp line that otherwise separates vested from contingent interests. Children can be given as much money as they need from the trust fund even though they are not yet equitable owners of their share in the fund. They benefit under s.31, even though they are not strictly speaking entitled.89 2. The discretionary trust The second device is the discretionary trust. From the 1670s to the 1950s the Chancery (and following the Judicature Acts of 1873–1875, the Chancery Division) aspired to offer an exact calculus of the equitable ownership. But in a couple of special situations, clarity about the location of equitable ownership becomes disadvantageous. When a young tearaway beneficiary got himself bankrupt and lost his rights to the trust fund, or when a beneficiary was afflicted with mental incapacity, Chancellors Eldon and Cottenham tolerated a blurring of equitable ownership.90 They were, as they saw it, protecting the 'lunatic' and spendthrift from their implacable enemy, the trustee in bankruptcy.91 The basic idea was to leave the trustee, rather than the settlor, with the power to determine who gets to be a beneficiary. A decision that would normally be made irrevocably and in advance by the settlor is delegated to the trustee, who has ongoing knowledge of the changing situation. Is the settlor’s son putting powder up his nose? If so, the trustee reduces the monthly cheques so that they pay for his groceries, but not for his dealer. Has the son returned from an enforced stay in the country with a clean bill of health? The trustee rewards him with a bigger cheque. This is a sensible response to an obvious problem, but it creates uncertainty about the son’s beneficial interest. If he is the beneficial owner, what’s to stop him demanding it from the trustees? If he cannot demand it, is he still, in any meaningful sense, its ‘owner’? During the 1950s, as high estate duty rates threatened to bring about a genuine redistribution of wealth from rich to poor, it became clear that the son could be given as much money as he might need even though he was not yet equitable owner of any of the trust fund. Hence tax lawyers referred to the discretionary trust as the ‘trust without an interest in possession’.92 3. The widely drawn power of appointment The third device that might help create cloudy assets is the widely drawn power of appointment. Re Gestetner’s Settlement [1953] validated a power so widely drawn that the settlor could treat the fund as his private bank account for twenty years.93 Gartside [1968] held that a discretionary trust combined with an accumulation and maintenance trust enabled the beneficiary to avoid estate duty. It was a culminating case of these 1950s and 1960s efforts to find orphan assets. It marks the watershed (along with Re Baden) between the 1670 and 1967 understanding of trusts, and the free-for-all that has followed. The Gartside discretionary trust was non-exhaustive: that is, the trustees were not required to distribute the entirety of the income and/or capital but may retain or accumulate the relevant property at their discretion. Sainsbury v IRC [1970] extended the loophole to exhaustive discretionary trusts (meaning one where the trustees are required to distribute the income and/or capital to the objects).94 re Manisty’s Settlement [1974] validated a deed of declaration adding to the beneficiary class under prior deed which the losing counsel castigated as ‘no defined class of objects at all’.95 ‘All the world except a few names on a list’ gives the trustee no guidance as to supervising the trust in a sensible manner.96 4. Purpose-trusts – another possible device (?) Until 1970 we had thought that the City of London was run according to common law, caveat emptor, principles. Quistclose taught us that equity could be mixed with contract to provide new products in the credit market.97 Peter Millett QC (later Millett J., Millett L.J., and Lord Millett) was the leading proponent of the new commercialised equity. He boasted that top Lincoln’s Inn barristers: … nowadays advise in major corporate insolvencies, mergers and acquisitions and commercial disputes of all kinds, and they bring their commercial experience with them when they are appointed to the Bench. Chancery judges today possess a far greater understanding of the City and of commerce and finance than their predecessors ever did. A great part of the work of the Chancery Division now overlaps with that of the Commercial Court, and the advantages to be derived from combining the two courts are increasingly coming to be recognised.98 If we can mix a trust with a loan to make a cloudy purpose-loan, can we also have cloudy purpose-trusts? Can we set up a trust where the beneficiaries own the assets for a purpose? This, if it can be done, would also amount to less than full equitable ownership. The beneficiaries would not be allowed to do a Saunders v Vautier (1841)99 to bring the trust to an end: they would go on being bound by the purpose as long as their ownership lasted. In Re Denley’s Trust Deed [1969] Goff J. recognised a non-charitable purpose trust over land that could be used primarily by employees as a sports ground.100 As far as the employees are concerned, their equitable ownership is cloudy. They are not absolute owners, but owners subject to an overriding purpose. With one eye on the Revenue and the other on the regulator, wealth brokers began inventing new types of cloudy assets. By the end of the 1970s, the old-fashioned split-ownership trust had become the ultra-modern loophole trust. The tax loopholes that had driven the process tended to get closed-down ten years or so after the wealth brokers invented them. Though tax law moved on, trust law got stuck with the mess. The doctrinal trust lawyers have not yet succeeded in explaining the nature of the rights acquired by the object of a discretionary trust.101 IV. QUIS TUTELAM HABET EST GRATIOSUS AEQUTATIS (the trustee is equity’s darling’) The cloudier the beneficiaries’ expectations the more power over the fund the trustees exercise. The more dispositive discretions the trustees have, the more they govern the whole trust structure.102 And the more trustees immunise themselves from liability, the more beneficiaries tend to suspect them as cheats. Not all suspicious beneficiaries can be dismissed as paranoid. This maxim focuses on the relationship between the trustees and the beneficiaries. During the Age of Split Ownership, this was understood as competing ownership rights in the trust fund. That the beneficiaries could assert their rights against the trustee’s legal title is what equitable ownership meant. Chancery wields a big stick, but how often does it strike the trustees who have fallen below acceptable standards? By the start of the 19th-century Lord Eldon was applying strict duties and unforgiving standards.103 Hence in 1854 Lord Chancellor Cottenham described anyone who, having already accepted a trusteeship, accepted a second one as ‘fit only for a lunatic asylum’.104 In relation to trustees exercising investment powers, we have moved away from strict liability and away from negligence towards liability being based solely on dishonesty. Speight v Gaunt [1883]105 took the first step by adopting a modified negligence test: the ordinary prudent man of business. It was followed, to similar effect, by Learoyd v Whiteley [1887]106 and Rae v Meek [1889].107 These cases would suggest that the strict rules against trustees were no longer necessary. Yet in 1895 Sir Howard Vincent, campaigning for the introduction of a Public Trustee, said that ‘the evidence puts it beyond question that large sums of money are annually misappropriated by private trustees’.108 Twentieth century cases have generally tended to immunise the trustee even more.109 In 1997, the long march from Lord Eldon’s strict liability finally reached Lord Millett’s dishonesty test through the validation of exemption clauses.110 No trustee shall be liable for any loss or damage which may happen to the [trust] fund or any part thereof or the income thereof at any time or from any cause whatsoever unless such loss or damage shall be caused by his own actual fraud. 111 Exemption clauses as wide as this are, so rumour has it, in widespread use. If honesty is now the minimum requirement, competence has become an add-on extra, for which the trust corporations are entitled to charge you more, what should really appear on their publicity is: THE CHEAP BUT CHEERFUL TRUST COMPANY We are honest and we are incompetent, but at least we’re cheaper than our competent rivals! The trouble with that, the early 19th century Lord Chancellors would have said, is that competence can be fairly judged in court, while dishonesty is very hard to prove. It is the difficulty of proving that recklessness has crossed over the line into dishonesty which makes the dishonesty test unfit for purpose. The 1960s cases have immunised trustees from many other angles. Boardman v Phipps [1966] allowed a trustee who had committed a technical breach of trust to be excused from paying back all of the money due.112 Hitherto trustees in technical breach had to pay back the lot. Re Lucking’s Wills Trust [1967] examined situations where small companies were owned by family trust funds.113 Should the trustees or the directors be liable for the mismanagement of the company? When Chancery ruled against the trustees, the wealth advisors immediately drafted an ‘anti-Lucking clause’ to reverse the effect of the judgement: the trustees are under no duty to inquire into the conduct of a company in which they are interested, unless they have knowledge of circumstances which call for an inquiry.114 By the 1980s, this clause was commonly being inserted in trust deeds. Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] examined the concept of ‘reckless dishonesty’ and considered whether it was unjust to find a trustee liable for it.115 By emphasising that a recklessly dishonest trustee was liable, the decision enhanced the impression that a negligent trustee, or a trustee who turned a blind eye to possible dishonesty, was not liable. re Baden (No 1) decided, that when it came to judging whether the terms of the trust were sufficiently clear to be valid, what was expected of the trustees varied depending on the type of trust. Even at the toughest end of the scale, however, the degree of clarity expected of the trustees was less than hitherto. Implicitly, Lord Wilberforce went further: He moved us to a world where trustees’ duties are no longer ‘one size fits all’ but tailored by a judge to the individual situation. Some trust powers (such as a Family Estate Duty avoiding discretionary trust) require the trustee to find out intimate details about members of the discretionary class. Discretionary trusts for employees of a company are lower down the sliding scale. It is enough for the trustees to proceed by class and category, choosing priorities and principles. There are, according to Lord Wilberforce, more duties on the trustee who holds a bare power than we thought and less duties on certain kinds of discretionary trustees. And that vagueness, inevitably, makes it easier for trustees to escape blame when they have failed in their duties. The tendency is for judges to say: ‘We understand what dishonesty is, and we shall therefore use it as the criterion of when a trustee should be blamed’. Davies was highly critical of this trend. Commenting on Schmidt v Rosewood Trust Ltd [2003] he says: The issue that really lies at the core of this awkward case is neither the need for disclosure, nor the need to exercise control over trustees. It is the independence and integrity of trusteeship. Changes which have taken place over the last twenty years are treated by the JCPC as a fait accompli, though they have never been tested in court at the fringes of their validity against the axiom—so often affirmed but without ‘realistic’ included in it—that for a trust to be valid there must be accountability of trustees to beneficiaries. It is not that trustees have to be made to do what settlors want, but that they have to do what settlors want. The interests of potential beneficiaries become secondary to the aims of settlors. Lacking independence, trustees become servants of masters.116 V. FIDUCIAM GUBERNARE POSSUNT, ET DONA FERENTES (‘they control the trust, even though they are the settlors’) During the Age of Split Ownership, the settlor dropped out of the script as soon as he had constituted the trust, (that is, conveyed ownership of the trust fund to the trustees).117 He did not even have the right (locus standi) to go to the Chancery and complain about maladministration of his trust. The traditional trust can be pictured as a gift strung out along the time axis. From the settlor’s angle, the gift takes immediate effect, and the settlor relinquishes all control over it. From the beneficiaries’ angle, the trustees remain in charge until the trust runs out of time. All has changed in the Age of the Loophole Trust. Now the settlor has become a more powerful figure. She can combine her role with being a trustee, or with being a beneficiary. And she can reserve powers to herself which are normally held by the trustee. Beyond that, the settlor might wish to supervise the degree to which the trustees (when they are paid per transaction) are ‘churning’ the assets to make themselves more money. They ‘may execute more trust transactions than are perhaps necessary’. In these circumstances, argues Michael Houston, the American trust lawyer, ‘a supervisory role for the settlor is nothing more than a natural extension of trust law given modern trusts’ newfound potential for conflicts of interest.118 The safer the trustees are from attack by the beneficiaries, the more control a wary settlor should retain over key investment decisions.119 The Split Ownership Trust was able to accommodate the settlor in two limited ways. First, the settlor could keep a power of revocation.120 Second, a Brown v Higgs style power of appointment allows new beneficiaries to be added after the trust has been constituted.121 The power can be given to a trustee, or a third party, or perhaps indirectly to the settlor himself.122 Thus far, I have stuck with loophole trust developments within England and Wales. Elsewhere, I will explain, the same trends occur in the offshore trust, but at twice the speed and momentum.123 The search for orphan assets has led offshore transactions to the condominium of trust and company. This enables assets in England to be held by Shamco, an offshore company, the shares of which are held by an offshore trust, Shamtrust. So far so good: Shamtrust is the undisputed owner of the assets. But (in a development of re Denley124) Shamtrust can be set up as a private purpose trust. Instead of having beneficiaries, Shamtrust has a purpose: to work for the prosperity of Shamco. So, the snake bites its own tail: Shamtrust owns Shamco, but Shamco (in a cloudy sense of ownership) owns Shamtrust. When regulators come calling, they will not know whose door to knock on. The offshore search for new ways to immunise the trustees has led to special offshore legislation giving ever greater protection to the trustees. And likewise with the project to empower the settlor.125 This trend of weakening the trustee has gone so far that the world of offshore has had to invent new roles called ‘Enforcer’ or ‘Protector’ so as to reintroduce someone who can stand up for the beneficiaries against the settlor. It is an open question whether enforcers and protectors do the job they are supposed to do, or merely provide a fig-leaf hiding the fact that the loophole trust has degenerated into a bank account with extra protection against bankruptcy. VI. Conclusion Lord Walker speaking of the degree of change that would have astonished Lord Eldon, links three dubious aspects of the loophole trust: they usually involve nominal settlors, concealed beneficiaries, and questionable fiduciary control - in practice they seem to rely on official ignorance of their existence.126 The loophole trust mode is to ‘treat the beneficiary as you would a mushroom’: quicumque beneficium confero, tracto ad modum boleti. The answer to the riddle had better stay in Latin: in tenebris pono, et excrementum taureum pasco inter tenebras et stirpum. Over the past half century especially the trust has undergone a momentous change. What, perhaps, many did not realise was that the changes mostly would be for the worse. A generation of Chancery practitioners reduced the trust from being a doctrine to being a loophole. Now ‘[t]he most important thing is to make this area of law work’.127 Lord Walker speaking of the degree of change that would have astonished Lord Eldon, links three dubious aspects of the loophole trust: they usually involve nominal settlors, concealed beneficiaries, and questionable fiduciary control - in practice they seem to rely on official ignorance of their existence. To make this area of the law work, we need to make divisions. Lord Wilberforce changed the way we taxonomise: he switched the emphasis from conceptual to functional. We interpret what the settlor’s draftsman wrote not using the preordained ‘power or trust’ concept, but by asking how the trustee can fulfil the instructions of the deed. The ‘great masters of equity’ claimed Lord Wilberforce, fine-tuned the ‘practical and commercial character’ of the trust. Their successors must do the same. Perhaps, we can start with the adoption of the anatine maxim: Est tibi pes anatinus, et est tibi vox anatine, Ergo anas es certe.128 It operates at a higher level of generalisation than substance over form, since it can handle form not just in the sense of legal formalities, but also in the Aristotelian sense of formal causes. Parliament might implement the maxim in statutory form, as it did in 1601 to declare that: if it walks and talks like an executor, it’s an executor. In more formal language, the statute ignored puppet executors and concentrated on whoever pulled their strings: whoever has actual control over the dead person’s assets can be chargeable as an executor de son tort. Then again, we have plenty of useful genuine maxims. Bacon offers us: A departure from the pleadings of the law is preferable rather than crimes and wrongs should go unpunished.129 Lord Walker speaking of the degree of change that would have astonished Lord Eldon, links three dubious aspects of the loophole trust: they usually involve nominal settlors, concealed beneficiaries, and questionable fiduciary control - in practice they seem to rely on official ignorance of their existence Footnotes 1 The Right Honourable Lord Justice Millett, ‘Equity – the Road Ahead’ (1995-6) 6 K.C.L.J. 1, 4. 2 T.F.T. Plucknett and J.L. Barton (eds.) St. German’s Doctor and Student (London 1974), 46. For a broader discussion of the influence of St. German on the development of Equity see S. Qayyum, 'The relaunching of the Chancery as Equity by Christopher St. German' (2021 forthcoming). 3 The maxim ‘equity follows the law’ first appears as a summary of St. German’s argument. This is the Doctor and Student version: ‘Equity follows the law in all particular cases where right and justice requires notwithstanding that a general rule of law be to the contrary’. He also wrote the first textbook on the Chancery practice and procedure: A Little Treatise Concerning Writs and Subpoena in J.A. Guy (ed.) Christopher St. German on Chancery and Statute (London 1985), 106–26. 4 Anon. (n.p. London 1546). The text has copied passages from St German’s Doctor and Student with some truncations and additions. 5 William Fulbeck, A Direction or Preparatiue to the Study of the Lawe: Wherein is Shewed, What things Ought to be Obserued and Vsed of them that are Addicted to the Study of the Law, and What on the Contrary Part Ought to be Eschued and Auoyded (London 1600); William Noy (although he may not have been the author), A Treatise of the principal Grounds and Maximes of the Lawes of the Kingdome (London 1641); Abraham Fraunce, The Lawiers Logike, Exemplifying the Praecepts of Logike by the Practice of the Common Lawe (London 1588); Henry Finch, Nomotechnia: Cestascavoir, Vn Description Del Common Leys Dangleterre Solonqve les Fules del Art : Parallelees ove les Prerogatives le roy : ovesque auxy le substance & effect de les Estatutes (disposes en lour proper lieux) per le quels le Common Ley est abridge, enlarge, ou ascunment alter, del commencement de Magna Charta fait 9. H. 3. tanque a cest jour (London 1613). 6 Bacon’s: A Collection of Some Principall Rules and Maximes of the Common Lawes of England with Their Latitude and Extent (London 1630), translated and available in J.C. Hogan and M.D. Schwartz, ‘A Translation of Bacon’s Maxim’s of the Common Law’ (1984–1985) 77 Law. Libr. J. 707), were written around 1597 but not published until 1630. Bacon states he collected 300 maxims but only 25 were published. Bacon leaves his maxims unorganised, so “as to leave the wit of man more free to turn and toss”: Francis Bacon 1861-74 The Works of Francis Bacon (eds.) J. Speeding, R. Ellis & D. Heath, 7 volumes; supplemented by the Letters and the Life of Francis Bacon, ed. J. Speeding, 7 volumes (London: 1857–1874) VII, 323. Hereafter references will be in the form Bacon [x:nn] (where x can be a volume between 1 & 14). He cites some classical precedents for this, but follows “chiefly the precedent of civil law, which has taken the same course with rules” (ibid.). His maxims have different thickness: some are thick human rights, others are narrow ‘legal presumptions, rules of evidence, canons of interpretation’ which give meaning to the thick ones in a courtroom context where it actually matters: P.H. Kocher, “Francis Bacon on the Science of Jurisprudence”, J.H.I. 18 (1957) 3, 11. 7 Bacon cites D.50:17:8 de diversis regulis iuris antiqui (‘on the various maxims of ancient law’) explicitly and frequently: Bacon VII, 323. 8 Bacon VII, 106, Exemplum Aphorism 84. 9 Though the collection of maxims cited in footnote 1 is attributed to Bacon – it may not be his work. It was certainly inspired by the collection he published ad exemplum in his Novum Organon. For details see J. Hogan and M. Schwartz, On Bacon’s ‘Rules and Maximes’ of the Common Law, Law Library Journal 76 (1983): 70. A third collection of his maxims, dealing with legal and social theory, have been discovered: see A. Huxley, The Aphorismi and Discourse of Laws: Bacon, Cavendish and Hobbes 1615-1620, The Historical Journal 47 (2004): 399–412. 10 R. Francis, Maxims of Equity (London 1727). He lists 14 maxims, which are not arranged but are well-annotated and indexed. 11 [1970] UKHL 1. 12 [1993] 3 WLR 126. 13 [2001] 1WLR 1. A principle deriving from the earlier nineteenth century case of Milroy v Lord [1862] EWHC J78. 14 [2001] 1 WLR 1, per Lord Browne-Wilkinson. 15 R. Pound, Jurisprudence, 5 Vols (reprint, New Jersey 2000), 556. 16 I use the term maxims in this article to mean details of law that Chancery lawyers themselves have chosen to elevate into principles of professional practice but accept that it is for the judge to decide what is or isn’t a maxim. 17 For details see F.M. Stenton, The First Century of English Feudalism, 1066 – 1166: Being the Ford Lectures Delivered in the University of Oxford in Hilary Term 1929 (Oxford 1932). Susan Reynolds’ thought-provoking study, Fiefs and Vassals: The Medieval Evidence Reinterpreted (Oxford 1996), cautions against seeing the lived medieval experience only through the lens of fiefs and vassalage as has been presented by a number of Anglophone medievalists. 18 For a general discussion on the origin of uses and how they were used see J. H. Baker, The Oxford History of the Laws of England Vol VI 1483 – 1558 (Oxford 2003), Ch 35; and for the medieval and Tudor periods see J.L. Barton, “The Medieval Use”, L.Q.R. 81 (1965): 562; W. Fratcher, “Uses of Uses” M.L.R. 34 (1969): 39; J. Biancalana, “Medieval Uses” and N. Jones, “Trusts in England after the Statute of Uses: A view from the 16th Century” 173-205 in R. Helmholz and R. Zimmermann (eds) Itinera Fiduciae: Trust and Treuhand in Historical Pespective (Berlin 1998); on the use being a transplant of the Islamic waqf allegedly brought back by crusaders see A. Avini, “The Origins of the English Trust Revisited” Tul. L. Rev. 70 (1996): 1139. 19 Many common lawyers were happy with uses, since we know they acted as feoffees and used these devices themselves, but there was also discomfort by the intrusion as expressed for instance by Thomas Audley in his 1526 reading against landowners who had employed uses, which may well have been deliberately extreme to attract Henry VIII’s attention at a time he needed money. 20 Abbot of Bury v Bokenham [1535] 1 Dyer 7b, 12a. 21 Writing in the early 20th century, W.N. Hohfeld, for example, impugned existing analytical treatments of trusts. Recent reminders of this view are provided by B. McFarlane, ‘The Essential Nature of Trusts and Other Equitable Interests: Two and a Half Cheers for Hohfeld’ and T.M. Sichelman, ‘Hohfeld's Complex Jural Relations’ in: S.Balganesh, T. Sichelman, and H. Smith, H, (eds) The Legacy of Wesley Hohfeld: Edited Major Works, Select Personal Papers, and Original Commentaries (Cambridge forthcoming). 22 J.B. Post, ‘Equitable Resorts Before 1450’ in E.W. Ives and A.H. Manchester (eds) Law, Litigants and the Legal Profession (London, 1983) 68–79. 23 S.F.C. Milsom, Historical Foundations of Common Law (London 1981) 213. 24 Law students are taught that that the Chancery (and later equity) would intervene to prevent a wrongdoer from using legal form to pervert legal substance; hence, the use was recognised. But sometimes, if the wrongdoer is an avant-garde conveyancer, the Chancery adopted the dodge and used it to usher in a more complex system of conveyancing. 25 27 Hen 8 c 10. 26 One unintended consequence of the Statute was to enable a much simpler form of conveyancing: since an agreement to sell land created a use, and since the conveyance converted the use into legal ownership, the bargain and sale conveyance could if enrolled replace the old livery of seisin conveyance, which had to take place on the land itself: D.H. Brown, ‘Historical Perspectives on the Statute of Uses’ Man. L.J. 4 (1979): 409, 429. Another consequence, probably intended, was to block the more sophisticated ownership possibilities allowed by the use. Within a few years Henry VIII bowed to gentry pressure and restored the power to testate in the Statute of Wills (1540) 32 Hen. 8, c. 1. 27 Henry Sherfield’s Reading on the Statute of Wills (16243), calendared in J.H. Baker and S.F.C Milsom, Sources of English Legal History: Private Law to 1750 (2nd edn, Oxford 2010), 149. 28 Or if you prefer, because the jurisprudence of the primary school playground bothers you, we can construct a more respectable intellectual pedigree for the claim by invoking the paradox of self-reference: A use that operates on another use is as strange and unpredictable as a Cretan who declares all Cretans are liars. 29 In 1624, Henry Sherfield complained of a ‘bastardly use’ lately sprung up ‘which is now a use upon a use … and this upstart has as great a place in the Court of Chancery as ever uses had’. Sherfield thought they should be ‘extirpated totally’: the use upon a use ‘like the project of making salt upon salt, all nought’: Baker and Milsom, Sources of English Legal History, 149. 30 Bertie (Duchess of Suffolk) v Herenden [1560] in Baker, ‘The Use Upon a Use in Equity 1558 - 1625’ (1977) 93 LQR 33, 33–8; Bertie v Herenden [1560] B. M. 121. The plaintiff was too friendly with the wrong clerics and had to flee to Poland to escape the Queen’s displeasure. Before doing so, she put her land-holdings in her lawyer’s name. Because the use on a use was legally ineffective, he had to confront the question of conscience. If he did not enforce the secret use, the dastardly lawyer would have kept the land himself. 31 [1595] 1 Co Rep 113b. 32 Bacon said that ‘… for the preamble sets up the mark, and the body of the law levels at it’ (Bacon VII, 625). See also D. R. Coquillette, Francis Bacon, Edinburgh 1992), 53–8. The Statute of Wills 1540 likely helped Bacon’s position to be adopted since it had become the prime defence to protect the royal purse from depletion. It made it possible for a landowner to decide who would inherit the land upon his death. 33 Coquillette, Francis Bacon, 54. 34 E. Ludlow, The Memoirs of Edmund Ludlow 1625–1672 Vol. 1 (ed.) C.H. Firth (Oxford 1894), 246. 35 A view shared by Matthew Hardwicke: see Hargrave Tracts, (1665) BL. Add. Mss. 18, 274–5. Many now believe President Obama’s failure to reform Wall Street was a crucial step in the failure of his presidency: see O. Stone and P. Kuznick, The Untold History of the United States, (Croydon 2013), 549–61. 36 In 1670, the Lord Keeper told a House of Lords Committee that ‘the trust is now the same as the uses were before’: W.S. Holdsworth, A History of English Law: Book IV (1485-1700). The common law and its rivals (London 1927), 642. 37 Hopkins v Hopkins [1739] 1 Atk. 581 at 591. 38 J.L. Barton, ‘The Statute of Uses and the Trust of Freeholds’ L.Q.R. 82 (1966) 215, 225. 39 P. Hamburger, ‘The Conveyancing Purposes of the Statute of Frauds’ A.J.L.H. 27 (1983): 354, 358. 40 Ibid, 381–2. 41 [1676] 3 Swanston 585. 42 The main demand for a registry came from the crown (suggested in the 1520s, and Francis Bacon got a patent to set one up in 1617) and the republic (Cromwell thought the gentry would back him if his laws backed land ownership). For the gentry, however, it seems the conveniences of a registry were outweighed by the Baconian precept that knowledge is power. The more the king knew about the location of gentry’s wealth the more power he had over them. This is partly about a matter of evading taxes and partly a matter of asset-protection. 43 See Land Registration Act 1925 (15 & 16 Geo 5 c 21). 44 [1684] 1 Vern 296. 45 For a general orientation on the equity of redemption see R.W. Turner, The Equity of Redemption: its Nature, History and Connection with Equitable Estates Generally (reissue edition Cambridge 2013). 46 H. Ballow, A Treatise of Equity (London 1737), 87. 47 Eaton v Jacques, Douglas Rep. 438, 443. 48 J. Child, Brief Observations Concerning Trade and Interest of Money (London 1668), 6. 49 9 & 10 William and Mary, c 15 (1698). 50 3 & 4 Anne (1704). For a general orientation on negotiable instruments in early English Law see F.K. Beutel “The Development of Negotiable Instruments in Early English Law” H.L.R. 51 (1938): 813. 51 Contemporary economists use labels M2, M3 and the like for different mixtures of credit and cash, which evoke motorways, rather than the unreality of credit. 52 For a very useful survey of the pivotal role of lawyers in the history of capitalism, from the coding of land to corporations, to less tangible assets and intellectual property rights see: Katherina Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (Oxford, 2019). 53 D. Daube, ‘Fraud on Law for Fraud on Law’ O.J.L.S. 1 (1981): 51, 53. For more folktales of the time see S. Thompson, Motif-Index of Folk-Literature Vol. 4: A Classification of Narrative Elements in Folktales, Ballads, Myths, Fables, Mediaeval Romances, Exempla, Fabliaux, Jest-Books, and Local Legends (Bloomington 1957), 124. 54 Savile v Savile [1721] 1 P Wms 745, 747. 55 P.J. Millett, ‘A New Approach to Tax Avoidance Schemes’ L.Q.R. 98 (1982) 209, 217. . 56 Ibid, 217. 57 Following Keech v Sandford [1726] EWHC Ch J76, Lord Chancellors had demanded that all trustees must be above suspicion. This in terrorem approach must be understood against the great difficulty that the Chancery had in proving dishonesty. Moreover, the Chancery insisted trustees acted for free, unless the settlor specifically authorised payment and it was no excuse if one was a sleeping trustee: they would still be liable even if they left all the decisions to be made by the other trustees. A number of 19th century cases led by Lord Eldon illustrate the strength of the Chancery’s in terrorem approach against trustees: see, for instance, Caffrey v Darby [1801] 6 Ves 488 and Ex parte James [1809] 32 ER 385. 58 B. Sabine, ‘Life and Taxes 1932 to 1992: Part II - 1945 to 1965: Labour Theory and Conservative Practice’ B.T.R. 4 (1993): 294, 299. 59 As the welfare state had to be paid for – and all citizens were expected to pay – so the courts become concerned about abuses of charitable status and/or those wealthy enough to employ expensive advisers. 60 In re Chapman's Settlement Trusts [1954] UKHL 1 at 15 Lord Morton said: 'Counsel assured us, however, that, during the intervening 44 years, orders had been made from time to time in chambers which were similar in their effect to the orders asked forin the present case'. See also the Law Reform Committee 6th report (Cmnd 310), presented to parliament in November 1957 which shows the influence of wealth advisors on Chancery judges. Jeffrey Hackney, for example, also complains of an institutional bias among Chancery judges. For biographical reasons, they take on the belief system of the wealth advisors whom they are supposed to be regulating: J. Hackney, ‘The Politics of the Chancery’ C.L.P. 34 (1981): 113, 117, 128–29. There are exceptions to Hackney’s generalisation, for example, E.B. Stamp became a Chancery judge after many years arguing for the Inland Revenue. In Re Baden (No.2) he tried to minimise the damage to the Exchequer caused by Wilberforce’s decision. This exception, in my view, tests the generalisation but does not disprove it. It is hard to find any Chancery judge in the last 40 years as hostile as Stamp towards avante-garde wealth structuring. 61 [1954] AC 429. 62 In 1957, a criminal barrister and Tory MP, F.P. Crowder, won the private member’s bill lottery and put forward a Variation of Trusts Bill. There was astonishingly little opposition. Nearly everyone who spoke in the Commons debate was a lawyer: for example, the Chancery barristers Sir Patrick Spens, Sir Lynn Ungoed-Thomas (then Chairman of the Chancery Bar Association), and Philip Bell, a solicitor specialising in wills and trusts. In the HoL debates, several lawyers gave their views. The only controversy it seems between them was whether the Bill should say explicitly that it was a tax avoidance Act. 63 Rossminster p.l.c. was set up by two accountants who had met while working at Arthur Anderson (the US accountancy firm whose receptiveness to new techniques was later to be demonstrated in the Enron scandal). One of them then moved to be tax adviser to Slater Walker, where he learned more about the creative use of charitable trusts and Jersey companies to spivvy ends. Rossminster sold avoidance schemes off-the-peg. To persuade clients, they drew leading tax counsel into the marketing of their schemes. One tax silk, a master of the Inner Temple and twice a member of the General Council of the Bar, consented to become Rossminster’s chairman, its public face to the world. Counsels’ opinions on the legality of loopholes were included in Rossminster’s sales packages, and their authors’ willingness to argue for the validity of their opinions up to the House of Lords was implicit in Rossminster’s guarantee to fight a test case on each scheme. Such opinions were traditionally given privately to clients and their solicitors; their use by the clients as marketing tools to sell tax schemes was a novel approach. It seems there were few objections from the Revenue Bar. For details see Michael Gillard, In the Name of Charity: The Rossminster Affair (London 1987), 36. 64 For instance, Grey v Inland Revenue Commissioners [1960] AC 1 and Gartside v Inland Revenue Commissioners [1968] AC 553. 65 For instance, Re Leek [1967] Ch 1061 and Re Baden’s Deed Trust [1969] 2 Ch 388. 66 Gartside v Inland Revenue Commissioners [1968] 1 All ER 121. 67 J. D. Davies, 'Trusts'. Annual Survey of Commonwealth Law Vol. 6 (ed.) H.W.R. Wade(Oxford 1970) 187, 190. 68 Ibid, 189. 69 J. Hackney, 'Trusts'. Annual Survey of Commonwealth Law Vol. 7 (eds.) H.W.R. Wade & H. Cryer(Oxford 1971) 375, 376. 70 Davies, Annual Survey of Commonwealth Law, 192. 71 Hackney, Annual Survey of Commonwealth Law, 376. 72 As it was then, J.W. Harris “Trust, Power and Duty” L.Q.R. 87 (1971): 31, 64. 73 ‘A dogma which decrees that, where legal ownership is vested in a trustee, equitable ownership must necessarily be vested in someone else’: ibid, 47. 74 Harris ‘Trust, Power and Duty’, 58. 75 Ibid, 57. 76 Ibid, 57. 77 Y. Grbich, ‘Baden: Awakening the Conceptually Moribund Trust’ M.L.R. 37 (1974): 656. 78 Ibid, 645. 79 Ibid, 656. 80 Ibid, 645. 81 [1971] 3 W.L.R. 475 & [1972] EWCA Civ 10. 82 Grbich ‘Baden: Awakening the Conceptually Moribund Trust’, 645. 83 The Act introduced a new s.2(1)(b) into the Finance Act 1894, attempting to tax discretionary trusts on the deaths of beneficiaries. 84 H. Cohen, ‘Discretionary Trusts and Estate Duty’ Conv. 35 (1971): 82, 91. 85 Grbich ‘Baden: Awakening the Conceptually Moribund Trust’, 654. 86 A.W. Scott, ‘The Trust as an Instrument of Law Reform’ Y.L.J. 31(5) (1922): 457–458. 87 Wood Preservation Ltd v Prior(H.M. Inspector of Taxes)(1) (1966–1969) 45 TC 112, 133. Until 1960, Silexine Limited were the beneficial owners of the share capital of the taxpayers. In March 1960, Silexine entered into an agreement with British Ratin Limited by which British Ratin agreed to buy the taxpayers’ share capital. The sale was subject to a condition that within one month a letter should be produced from a certain German company giving an assurance that they would continue certain rights in favour of the taxpayers. It was argued that after entering into the contract Silexine had no power to deal in any way with the taxpayers’ share capital, and therefore were not owners in any sense of the business. Lord Donovan said by the contract of sale of the shares, Silexine ceased to be able to appropriate to itself any of the benefits of ownership. This does not necessarily mean that British Ratin became the beneficial owner. It is possible for property to lack any beneficial owner for a time, for example property which is still being administered by an executor which will go eventually to the residuary legatee (he was referring to Commissioner of Stamp Duty (Queensland) v Livingstone [1965] AC 694). 88 The trustees have to hold documents of legal title (bank books, entries in the Share and Land Registries, written schedules of valuable chattels, etc) and that gives the government a clue as to what is available to be taxed. So, it is hard for trustees to avoid paying their share of the Income Tax levied on the trust-fund. 89 On how these worked see, for instance, Inland Revenue Commissioners v Blackwell Minor’s Trustees [1925] 10 TC 325 and Re Turner’s Wills Trust [1937] Ch 15. 90 See, for example, Brown v Higgs [1799] 4 Ves. 708 and Burrough v Philcox [1840] 41 ER 299. 91 ‘Under modem conditions the Inland Revenue has been substituted for the trustee in bankruptcy, in the minds of settlors and their advisers, as the villain whose evil designs must be thwarted’: R. Horne, ‘Discretionary Settlements’ B.T.R. 3 (1957): 256, 256. 92 For a general orientation on an interest in possession see Pearson v Inland Revenue Commissioners [1981] AC 753. 93 [1953] 1 All ER 1150. Sigmund Gestetner combined a widely drawn power with an accumulation and maintenance trust to produce a passive discretionary trust: the fund to be accumulated for twenty years, then to a specified class (which included the settlor’s children), in such proportions, as the trustee shall think fit. This guaranteed that the beneficiaries received a 20-year Income Tax holiday. But if the children desperately needed money to pay for their skiing trip, it can be handled out of maintenance. It is still possible to talk of settlor’s children as, collectively, having equitable ownership of the fund but the word ‘collectively’ is having to do a lot of work. 94 [1970] Ch 712. Along with Pearson v IRC which concerned Capital Transfer Tax 1984 (the forerunner of Inheritance Tax), these cases reveal that English Law can produce orphan assets that are sufficiently ownerless to avoid tax. Of course, the Inland Revenue eventually legislated to close the loophole. As we have seen, the Capital Transfer Act was a bold attempt to eradicate the tax advantages enjoyed by discretionary trusts. The war between wealth advisors, the Revenue and regulators moved on to new battlegrounds. 95 [1974] Ch 17. 96 Ibid, 20. Per John Bradburn arguing for the two infant sons. 97 Barclays Bank Limited v Quistclose Investments Limited [1968] UKHL 4. 98 Millett ‘Equity - the Road Ahead’, 4. 99 [1841] EWHC J82. 100 [1969] 1 Ch 373. 101 These four questions have not yet been satisfactorily answered: (1) Can O (an individual object of a discretionary class) establish a right as against the trustee to any trust property or force the trustee to allocate? (2) Can O establish a right as against the rest of the world to any trust property? (3) Has O got enough locus standi to ask the court to restrain the trustee, for example, from making an ultra vires appointment? (4) If O has none of these rights, does the discretionary class as a whole enjoy them collectively? 102 This has led to what Lionel Smith aptly describes as ‘massively discretionary trusts’ TT 25 (2019): 397–421. 103 See, for example, Ex parte James [1803] 32 ER 385. 104 Law Times, 17 June 1854, 125 105 [1883] UKHL 1. 106 [1887] 12 App. Cas. 727 . 107 [1889] 14 App Cas 558. 108 Howard Vincent 1895 99 LT 67 and he added that ‘those who suffer are chiefly the poorer and more helpless’. 109 See, for example, Holder v Holder [1968] Ch 353, Nestle v National Westminister Banker [1992] EWCA Civ 12. 110 See Armitage v Nurse [1997] EWCA Civ 12. 111 Ibid, 250. The clause in question was taken from Hallett's Conveyancing Precedents (1965). 112 [1966] UKHL 2. 113 [1967] 3 All ER 726. 114 J. Kessler, Drafting Trusts and Will Trusts (London 2000), 80. 115 [1968] 1 WLR 1555. This case deals with the duties of fiduciaries, and those who help them. It emphasised that the dishonesty test is only appropriate for criminal proceedings. It took thirty more years for the courts to overrule themselves on this point. 116 J.D. Davies, ‘Integrity of Trusteeship’ L.Q.R. 120 (2004): 1, 7. 117 See, for instance, Re Bowden [1936] Ch. 71: The settlor, before becoming a nun and in order to undertake the vows of poverty, chastity and obedience, transferred property to trustees on trust for specified beneficiaries. Later, she changed her mind when she left the convent and attempted to reclaim the property for her benefit. Bennett J. concluded that the persons appointed trustees under the settlement received the settlor's interest. Immediately after it had been received by them, as a result of her own act and her own declaration it became impressed with the trusts contained in the settlement. A valid trust was created and the claimant, as a settlor, lost all interest in the property and therefore could not recover the property. 118 M. Houston, ‘Estate of Wall v Commissioner: An Answer to the Problem of Settlor Standing in Trust Law?’ Nw. U.L. Rev. 99 (2005): 1723, 1725. 119 Tey Tsun Hang explains that the desire to empower the settlor results from the increased immunity of the trustees, and the clouded ownership of the trust assets: ‘… modern trusts are used as investment tools aimed at enhancing the value of financial assets. … [this] calls for the settlor to devolve more options upon the trustee in the dispositive provisions of trusts, ie, the allocation and distribution of beneficial interests’: T. T. Hang “Reservation of Settlor’s Powers” (2009) 21 S.A.c.L.J. 517, 520-1. 120 Tompson v Browne [1835] 3 Mylne & Keen 32 and Re Flavell [1883] 25 Ch.D. 89. 121 [1799] 4 Ves. 708. 122 Re Manisty’s Settlement [1974] Ch 17. This means that the sensible policy the trustees carry out is not laid down in the trust deed, therefore it never becomes known to beneficiaries, judges, or residuary legatees. It may, however, be laid down in the ‘letter of wishes' written by the settlor to the trustees. To the extent that the trustee follows the settlor's wishes, the power has shifted from trustee to settlor. And, because of the secrecy surrounding such letters of wishes, the power of the beneficiaries also dwindles. Templeman J. even allows that the trustees keep secret the existence of the wide power to nominate anyone to the beneficiary class. At first glance this decision looks as if it is empowering the trustee rather than settlor but we have to consider whether a trustee, when exercising a hybrid power of appointment, will follow instructions given to him by the settlor. For a general orientation on the role of letters of wishes see T.T. Hang, ‘Letters of Wishes’ S.A.c.L.J. 21 (2009): 193. 123 Adam Hofri Winogradow provides a recent reminder that domestic trust law reforms cannot be understood absent of at least some discussion of trust reforms abroad: ‘The Stripping of the Trust’: From Evolutionary Scripts to Distributive Results O.S.L.J. 75 (2014): 536. 124 Re Denley’s Trust Deed [1969] 1 Ch 373. 125 For instance, a Cayman Islands Act of 1999 allows settlors to reserve for themselves pretty much any power that the trustees normally exercise. 126 Lord Walker of Gestingthorpe, ‘Ramsay 25 Years On: Some Reflections on Tax Avoidance’ L.Q.R. 120 (2004): 412, 420. See also Schmidt v Rosewood Trust Ltd [2003] UKPC 26. 127 Davies, Annual Survey of Commonwealth Law, 188. 128 Usually translated as: If it walks like a duck and quacks like a duck, then, it’s a duck. The maxim expresses equity’s preference for the underlying reality hiding behind a screen of parchment and sealing wax. To cite one example of its use in history: in the 17th century the Chancery discovered simple loan transactions hidden under complex land transfers and concluded – ‘once a mortgage, always a mortgage’: Thornborough v Baker [1675] 3 Swanston 628. 129 Bacon VII, 358. Author notes †This is the subtitle supplied by the printer of the 1630 edition of Francis Bacon’s A Collection of Some Principall Rules and Maximes of the Common Lawes of England, with Their Latitude and Extent. Explicated for the more facile Introduction of such as studiously addicted to that noble Profession (London 1630). © The Author(s) (2021). Published by Oxford University Press. All rights reserved. This article is published and distributed under the terms of the Oxford University Press, Standard Journals Publication Model (https://academic.oup.com/journals/pages/open_access/funder_policies/chorus/standard_publication_model)
TI - Some new maxims of chancery: ‘Explicated for the more facile introduction of such as are studiously addicted to that noble profession’
JF - Trusts & Trustees
DO - 10.1093/tandt/ttaa107
DA - 0009-07-13
UR - https://www.deepdyve.com/lp/oxford-university-press/some-new-maxims-of-chancery-explicated-for-the-more-facile-AyBPkl8ugL
SP - 1
EP - 1
VL - Advance Article
IS - 
DP - DeepDyve
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