What we are trying to explain
Section 53 of the Law of Property Act 1925 provides:
(1)(b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;
(1)(c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.
(2) This section does not affect the creation or operation of resulting, implied or constructive trusts.
Fuller on formality
In his classic essay ‘Consideration and form’ (1941) 41 Columbia LR 799, Lon Fuller distinguished between three different functions that might be served by formality requirements:
(1) the evidential function, of providing evidence of a transaction that the parties intended to enter into;
(2) the cautionary function, of putting someone on notice that they are entering into a transaction, and encourage him to think about whether he wants to enter into that transaction;
(3) the channelling function, of providing a well-defined means of entering into a particular transaction.
Let’s see whether any of these functions can explain the operation of the formality requirements set out in s 53(1)(b) and s 53(1)(c).
At first sight, s 53(1)(b) seems to perform a cautionary function – the idea being that it saves people from making ill-thought out and hasty declarations of trust over land that they own. However, the language of s 53(1)(b) (‘a declaration of trust respecting any land…must be manifested and proved…’) indicates that it performs an evidential function. But why? Bill Swadling has given us the answer in his essay ‘The nature of the trust in Rochefoucald v Boustead’ in Mitchell (ed), Constructive and Resulting Trusts (Hart, 2010). Section 53(1)(b) originates in the Statute of Frauds, and the requirement in the Statute of Frauds that a declaration of trust over land be evidenced in writing was designed to stop landowners being defrauded of their land by people falsely alleging ‘You said you held your land on trust for me!’ and persuading a court to believe their allegation. The requirement of writing for a declaration of trust put a stop to this practice: unless you could provide some writing in support of your claim that a landowner had declared that he held his land on trust for you, then your claim would fail immediately.
This has a very important implication, which is that s 53(1)(b) should only apply where a landowner is being sued on the basis that he has declared that he held his land on trust for the claimant. Where A conveys Blackacre to B on the basis that B will hold Blackacre on trust for A and then sues B to enforce the trust, the fact that they never put it in writing that B would hold Blackacre on trust for A should provide no obstacle to A’s claim. A’s claim is not that B declared that he would hold Blackacre on trust for A, but that he intended B to hold Blackacre on trust for him when he conveyed it to B. So the mischief at which s 53(1)(b) is targeted is not present here, and so there’s no reason to apply s 53(1)(b) to prevent A making out his claim. The caselaw acknowledges this point, with cases such as Rochefoucald v Boustead (1897) and Bannister v Bannister (1948) holding that in this kind of situation, B cannot rely on s 53(1)(b) to defeat A’s claim. As Bill Swadling points out, academic commentators get it wrong by saying that the trust on which B holds Blackacre for A is constructive. No: it is express, based on the court’s giving effect to A’s intention that B should hold Blackacre on trust for A.
What about the situation where A transfers Blackacre to B and C sues B, alleging that A transferred Blackacre to B on the basis that B would hold the land on trust for C? If C cannot produce any writing in support of his claim, should s 53(1)(b) operate to bar C’s claim? If A is dead, then it probably should – not applying s 53(1)(b) would leave B vulnerable to claims from all and sundry claiming ‘A told you to hold Blackacre on trust for me when he conveyed it to you.’ But if A is still alive and in a position to intervene when C sues B and say, ‘What are you talking about? I never said B should hold Blackacre on trust for you!’ then there seems no reason why B should be able to set up s 53(1)(b) in order to defeat C’s claim.
Section 53(1)(c) is not phrased in a way which indicates that it performs an evidentiary function, but it is hard to see why beneficiaries need to be saved by a formality requirement from making ill-thought out and hasty transfers of their beneficial interests to others. So we should consider seriously the possibility that s 53(1)(c) performs an evidential function.
We have already seen that s 53(1)(b) exists to protect property owners being defrauded of their property, and it might be that s 53(1)(c) performs a similar function. If A holds money on trust for B, B might be vulnerable – in the absence of s 53(1)(c) – to being defrauded of his money by A, with A suddenly holding on trust for C, and when B objects, A says (with vehement support from C), ‘But you told me that you wanted me to hold the money on trust for C!?’
But it may be that s 53(1)(c) exists for the benefit of trustees, as well as beneficiaries. The idea is that if A holds property on trust for B and B orally instructs A to hold on trust for C, then if A follows B’s instructions and starts holding on trust for C, then A is vulnerable to being sued by B, with B arguing, ‘Why are you paying money to C? You hold on trust for me, not C!’ In such a situation, A will find it very difficult to defeat B’s claim – he did originally hold on trust for B, and he won’t have any writing to back up his claim that B told him to hold on trust for C, so a court could well hold him liable for wrongfully paying out money to C. Section 53(1)(c) saves A from any such embarrassment – when B orally instructs A to hold on trust for C, A can say to B, ‘You’ll need to put that writing: until you do, I will continue to hold on trust for you.’
One problem with this explanation of s 53(1)(c) is that if it is right, then it would have been desirable for Vandervell v IRC (1967) to be decided differently. Vandervell said that if A holds money on trust for B, and B orally instructs A to convey legal title to the money to C so that C will become the absolute, unencumbered legal owner of the money, then if A does transfer the money to C, C will become the absolute, unencumbered legal owner of the money. B won’t be able to invoke s 53(1)(c) and argue that because he never put anything in writing, his beneficial interest remains undisposed of, and C holds the money on trust for him. The decision is right in theory: B is attempting here to destroy his beneficial interest in the money, not dispose of it. (Note that when C receives the money she does not acquire a beneficial interest in the money – she just acquires legal title, and she gets to enjoy the money beneficially because no one else has a beneficial interest in the money.) But if our account of the basis of s 53(1)(c) is correct, the decision in Vandervell is objectionable in practice. The two reasons for this are: (1) If A holds money on trust for B, then the decision in Vandervell makes B vulnerable to A’s suddenly transferring the money to C, and then when B objects, A can claim (with C’s vehement support) that, ‘But you told me to transfer the money to C so that he would become the absolute legal owner of it!’ (2) If A holds money on trust for B, and B orally instructs A to transfer the money to C so that C will become the absolute legal owner of it, then A is vulnerable to being successfully sued by B if he follows B’s instructions: B can later turn round and say, ‘Why did you give the money you hold on trust for me to C? I’m suing you for wrongfully disposing of trust assets’ and A won’t be able to produce any writing to back up his argument that he was only doing what B told him to do.
In considering cases on the ambit of s 53(1)(c), you should also keep out your eye for the possibility that the courts in some cases might be interpreting s 53(1)(c) as performing a channelling function – in other words, they interpret s 53(1)(c) as saying that the only way to dispose of a beneficial interest in property to another is to do it in writing, where the written document conveying the beneficial interest can be subjected to stamp duty. On this view, s 53(1)(c) is all about tax raising – if you want to dispose of your beneficial interest in property to someone else, you can: but the only way of doing this is to do it in writing, at which point stamp duty will be payable on the document that has the effect of conveying your beneficial interest to someone else. And attempts to evade the effect of s 53(1)(c) are all about tax avoidance – trying to convey your beneficial interest in property to someone else without putting anything in writing that can then be subject to stamp duty.