The Unbearable Lightness of Property - alastairhudson.com

contract for services whereby some person will be limiting their liability and
identifying their fee in return for acting as trustee. To that extent, yes, there will be a
contract. To that extent, the Court of Appeal has held that this contract ought to limit
even trustees’ liability for breach of trust if the terms of the contract require that –
even where the trustee has been guilty of gross negligence. 60 However, many express
trusts arise without a contract in will trusts and in situations like Paul v. Constance 61
or Re Kayford 62 where the parties do something akin to a trust but which they may not
necessarily have described as a trust – these may occur naturally in the wild in great
profusion but they are unlikely to have enough at stake to reach the Chancery courts.
However, to return to the central argument of Langbein’s essay: trusts should be
considered as being contracts at root and therefore it should not matter that there is or
is not a beneficiary who can satisfy the beneficiary principle. This is particularly
important for a range of vehicles used to hold assets for tax avoidance purposes
whereby those who contribute to a fund might wish to appear to have no beneficial
interest in that fund for tax purposes but nevertheless be able to rely on the
munificence of a discretionary trustee looking favourably upon them when the time
comes to distribute the fruits of the fund. It is important that no individual be
identifiable as a beneficiary for two reasons. First, so that no revenue authority can
identify any profit-generating property in any of the participants. Second, so that no
individual can claim entitlement to the fund in the absence of any other and so
establish a beneficial claim to the fund ahead of the participants. This second feature
means that there is no beneficiary capable of satisfying the beneficiary principle.
The claims of Langbein and others in this line that trusts should be considered to be
contracts are therefore intended to serve that well-heeled community of cosmopolitans
who wish to increase the lightness of their property ownership not only by converting
entirely into cash flow without the wearying difficulties of ownership but also by
denying the very fact of their ownership while still being reassured that they will
receive an income stream as though the recognised owner of the property! Double the
lightness, half the risk. Ownership without ownership, wealth without responsibility,
property without weight!
Investment trusts as contracts
Aside from the fiscal benefits of the trust-as-contract considered immediately above,
there are other analyses of various types of trust as being, in essence, merely
contracts. The most obvious is that of Sin in relation to unit trusts: Sin suggests that a
unit trust ought not to be considered to be a trust at all but that it ought properly to be
considered to be a purely contractual relationship. 63 Sin’s argument is based on the
simple proposition that the purpose of entering into a unit trust arrangement is to
generate a cash flow for the investor (or, “participant”). It is this contract effected
between the participants and the scheme manager (who conducts all of the investment
business on behalf of the participants) which Sin contends is the true substance of the
arrangement as opposed to any property law arrangement.
60 Armitage v. Nurse [1998] Ch 241.
61 [1977] 1 WLR 527.
62 [1975] 1 WLR 279.
63 Sin, The legal nature of the unit trust, Oxford University Press, 1997.
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