Verbal Contracts (Answering Problem Questions)

Problem Question:

Ahmed placed the following advertisement in his local newspaper, the Manport Argus: FOR SALE 5 metre recreational vehicle. Superb condition Sleeps five. Many extras included. £35,000 or near offer. Tel. 0664 99795 Stuart telephoned Ahmed and told him that he was very interested in the RV. Ahmed invited Stuart to visit his house on Monday 6 September to inspect the vehicle. After inspecting it, Stuart offered Ahmed £25,000. Ahmed replied that he felt unable to take less than £30,000. Stuart asked for time to think the matter over.
Ahmed agreed not to sell the RV before Thursday 9 September. Stuart went home and wrote a letter to Ahmed saying: "I am prepared to pay you £30,000 for the RV. I assume all the crockery and kitchen utensils are included." Stuart posted the letter on the morning of Wednesday 8 September.
He used the correct address but omitted the post code and the letter was inadvertently sent to Manport (another town with the same name) in Scotland. It did not finally arrive until Friday 17 September. Meanwhile, on Thursday 9 September in the afternoon Stuart happened to see the RV being driven by Michelle, a dealer in second-hand RVs. Afraid that he had missed the chance to purchase the vehicle Stuart rushed home and telephoned Ahmed.
He left a message on Ahmed's answering machine saying that he accepted Ahmed's offer to sell the RV for £35,000 and he did not mind if the kitchen utensils were included or not. Ahmed did not hear the message until the following day.
Stuart has since discovered that Ahmed did indeed sell the RV to Michelle on Thursday morning. 

Advise Stuart

For a valid contract to exist between two or more parties it must be shown that there has been and offer and that that offer has been accepted. In addition there must be an intention from both parties to create legal relations and consideration.

We will assume the intention to create legal relations as it is obvious here.  The consideration for the parties will be the recreational vehicle on Ahmed’s behalf and the money on Stuart’s behalf.  Offer and Acceptance are a little harder to prove and there are some difficulties in this scenario.
Ahmed’s advertisement in the local newspaper to sell his five metre recreational vehicle for £35,000 cannot be construed as being an offer. An offer is a statement of willingness to be bound by the terms of the offer.

Therefore Ahmed must be willing to contract on the terms contained within his advertisement, therefore as he does stipulate that the sale is £35,000  or nearest offer, it is suggests that he is inviting persons to make an offer therefore it will be deemed an invitation to treat. The advertisement would appear to be simply an attempt to open negotiations. This can not be construed as an offer as an offer must be certain in its terms, and this is not as Ahmed says that “many extras are included”, and this is fairly uncertain coupled with the effect that by saying “or nearest offer”, Ahmed is inviting offers.

In any event if this was deemed an offer, Stuart has made an offer of £25,000 which operates in the same way as rejection of the first offer and will destroy the original offer made by Ahmed to Stuart to sell the recreational vehicle for £35,000, furthermore this is a new offer and will require acceptance in order to form a contract. 

Ahmed makes a statement suggesting that he will accept no less than £30,000 it is arguable that this is not in fact an offer as an offer must be certain.  The parties must know in advance what they are contracting over, so any vague words may invalidate the agreement.  The term no less than £30,000 is not a certain term and indicates an offer from anything from £30,000 – infinity.  We will, however assume that this is a valid offer in order to consider the other issues.

Stuart’s letter is sent accepting Ahmed’s offer (if indeed it is deemed to be a valid offer) of £30, 000 on Wednesday 9th and the general rule will be that he can proceed on the basis that the contract is concluded as soon as the letter is posted.  Therefore on this rationale Stuart has validly accepted Ahmed’s offer and a contract exists between the two of them.  This means that Ahmed is bound to a contract without being aware that this has happened.  However this rule will only apply where it is reasonable for the acceptance to be sent by post. 

Therefore it could be argued by Ahmed that it was not reasonable to accept the offer by post as his telephone number was placed in the advertisement, indicating that was how an acceptance should be made, although if Ahmed wanted acceptance only to be by telephone or in person he should have indicated this in his advertisement.  Although:
“where the circumstances are such that it must have been within the contemplation of the parties that, according to the ordinary usages of mankind, the post might be used as a means of communicating the acceptance of an offer, the acceptance is complete as soon as it is posted”
If it is concluded that the postal acceptance was a valid method of accepting the offer there may still be an issue as to whether or not the fact that no postcode was put on the envelope effects the validity of this acceptance.  It has been held that an acceptance that was entirely lost in the post, and never arrived at its destination, was still effective to create a contract.  The difference with this case and the present case is that the loss of the letter in the former case was not any fault of the offeror where as in the present case the reason for the letter not reaching its destination in time is the fault of Stuart that is assuming that the post code was contained within the advertisement.

The terms of the letter are slightly different from the terms made in the offer of £30,000 in so far as they say that he assumes that all cutlery is included, it can therefore be argued that this is in fact a new offer as it is an offer of £30,000 for recreational vehicle and cutlery.  Whilst the original offer of £35,000 included many extras, the second “offer” of £30,000 to not explicitly include anything other than the recreational van.  Therefore the first question that must be dealt with is whether this letter is an acceptance or an offer.   Where an acceptance of an offer does not exactly mirror the offer, the courts are prepared to consider that a valid contract exists where the terms are very close and in fact almost identical as it is argued here.

In relation to the message that Stuart left on the answer machine, the first issue here would be whether or not the statement that Ahmed was not prepared to accept any less than £30,000 was in fact a new offer which has negated the effect of the first offer of £25,000, if it is then there can be no acceptance as this is a different contract on different terms and therefore by calling and saying that he his prepared to pay £35,000 Stuart is making a new offer, which Ahmed can accept or reject.  In any event the effect of the counter offer of £25,000 was to destroy the original offer of £35,000, therefore making Stuart’s “acceptance of” £35,000 in fact not acceptance but a new offer.  Whether or not this will be the case will depend very much on what the reasonable man receiving the letter would have taken it to mean.

Therefore on this basis one would assume that this is valid acceptance and that Stuart has made a contract with Ahmed.  However next it should be considered whether or not the delay in the letter being received has an effect on the existence of a contract.
If however the statement not to accept less than £30,000 was not a new offer then it may be that Stuart has validly accepted the original offer.

To determine whether or not the answer machine message was valid acceptance will depend on whether it is deemed as being received on 9th September when the message was left or acceptance took place on the 10th when Ahmed listened to his messages.  The general rule is that acceptance by electronic communication will take place where it is received, rather than where it is sent. Therefore the acceptance has taken place at Ahmed’s house; however of importance here is when it can be deemed to be accepted. It has been held that acceptance will be effective when it is “received” even if it is not actually heard until the next day. Most of the case law in this area however deals with commercial entities and this rule applies in the main to office opening hours. All it should be noted that: “No universal rule can cover all such cases: they must be resolved by reference to the intentions of the parties, by sound business practice and in some cases by a judgement where the risks should lie”

It is more likely here that Ahmed expected that acceptance should be by telephone as the advertisement for the sale of the recreational vehicle included a telephone number therefore, providing that the statement not to accept less than £30,000 was not a counter-offer, Stuart has accept the offer validly.  This of course means that there is a contract and that by selling the Recreational vehicle to Michelle that Ahmed is in breach of his contract to Stuart.

However Ahmed has agreed that he would not sell the vehicle before the 9th September 2004, therefore one would assume that this does not include the 9th and if Ahmed sold the vehicle to Michelle on the 9th he would not be in breach and would indeed be fully entitled to sell the vehicle to Michelle.  One of the ways in which an offer can end is because the time set for acceptance has passed as would be the case here if the letter was not deemed to be accepted, as the answer machine was made past the time for acceptance.
If there did exist a valid contract it has now been breached and Stuart will have a claim for breach of contract and may seek a remedy.

Damages will always be available for breach of contract.  The contract can be repudiated if it can be shown, as there has been here, that a breach of a condition has occurred if this is not done then the repudiation will be a breach. If Stuart proves that a contract was in place and that it has been breached he may be inclined to appeal to the court for the equitable remedy of specific performance. 
Three things must be noted in relation to this equitable remedy.  The first is that it will be at the discretion of the court and will not be granted as of right.  Secondly, it will be granted subject to (i) the general maxims of equity and (ii) individual requirements. Thirdly, it will be in relation to the individual problem suffered by the injured parties.

Specific performance is a straightforward order of the court for the party in breach of the contract to carry out his obligations.  It will only be granted if Stuart can show that the subject matter of the contract is unique and could not be replaced; if it is impossible to accurately assess damages and therefore damages will be an inadequate remedy and that he is left without an adequate remedy.  On this basis it is unlikely that Stuart would be awarded such a remedy and he will therefore only recover damages.  The intention of such damages will be to “put the victim of the breach, so far as possible and so far as the law allows, into the position he would have been if the contract had not been broken.”  Stuart will be entitled to nominal damages even if he is unable to prove any actual loss.  In order to recover damages for actual loss he will have to show that there is a casual link between Ahmed’s breach. 

In summary:  

• The advertisement placed by Ahmed was an invitation to treat.
  
• Stuart offering £25,000 was an offer to purchase the vehicle, available for Ahmed to accept
  
• This offer was rejected by the counter offer made by Ahmed that he would not accept less than £30,000, arguably this is not an offer, however we will assume that it is.
  
• This offer was accepted by post by Stuart, however he failed to put the postcode on the envelope.  Under normal rules this would be deemed to be acceptance – there are however two concerns (1) the reason that it did not arrive at its destination was the fault of the acceptor (2) The advertisement originally placed included a phone number, suggesting that this was the way to communicate.
  
• The offer that was made by letter was not a “mirror image” of the offer made by Ahmed, which it can be argued was uncertain in its terms
  
• However if the court may deem this to be valid acceptance – and therefore a breach of contract has occurred in so far as the vehicle has been sold to Michelle.
  
• The message left on the answer machine was made after the time for acceptance and furthermore this was a fresh offer for £35,000 and it was for Ahmed to accept.
  
• The only way in which a contract may have been created will be by the acceptance sent by post.  It is unlikely that the court will consider that this is the case.
  
• Stuart will have a claim for damages. 
  

Bibliography 

 

Cases

• Adams v Lindsell (1818) 1 B & Ald 681
• Behenke v Bede Shipping Co Ltd [1927] 1 KB649
• Brinkibon Ltd v Stahag Stahl [1983] 2 AC 34
• Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256
• Entores v Miles Far East Corporation [1955] 2 QB 327
• Falcke v Gray (1859) 4 Drew 65; 62 ER 250
• Gibson v Manchester City Council [1979] 1 ALL ER 972
• Harris v Nickerson (1873) LR 8 QB 286;
• Henthorn v Fraser [1892] 2 Ch 27
• Holwell Securities Ltd v Hughes [1974] 1 ALL ER 161
• Household Fire and Carriage Accident Insurance Co v Grant (1870) 4 Ex D 216
• Hyde v Wrench (1840) 3 Beav 34
• Lefkowitz v Great Minneapolis Surplus Stores (1957) 86 NW 2d 689;
• Pars Technology Limited v City Link Transport Holdings Ltd [1999] EWCA Civ 1822
• Partridge v Crittenden [1968] 2 ALL ER 421
• Robinson v Harman (1848)1 Exch 850
• The Brimnes [1975] QB 929

Legislation

• Directive on Electronic Commerce (Directive 2000/31/EC)

Books

• Beatson J, (2002), “Anson’s Law of Contract”, Twenty Eighth Edition, Oxford University Press
• McKendrick E, (2003), “Contract Law”, Fifth Edition, Palgrave McMilliam
• McKendrick E, (2003), Contract – Text and Materials, Oxford University Press
• Stone R, (2002), “The Law Of Contract”, Fifth Edition, Cavendish Publishing

 

The Law of Defamation, The European Convention on Human Rights and The Human Rights Act 1998 (Essay)

The aim of this study is to consider, via an analytical approach, the effect on the law of defamation of the implementation of the European Convention on Human Rights and the Human Rights 1998 and whether or not the law of defamation strikes an appropriate balance between the need to protect reputation and the general right of freedom of speech. During the conduct of this study a number of points will be discussed. The points to be discussed are the law of defamation and where it is located, and its working. There will be an in-depth analysis of how the law addresses the difference between what is considered to be defamatory and the right to freedom of speech. Finally, the effect of the implementation of the European Convention on Human Rights and the Human Rights 1998 and whether or not it has struck an appropriate balance between the need to protect reputation and the general right of freedom of speech will be subject to an in-depth and thorough analysis.

Before the impact and effect of the implementation of the European Convention on Human Rights and the Human Rights 1998 on the law of defamation can be discussed, it is imperative that an in depth analysis of the law of defamation is undertaken. This analysis will address what the law of defamation is, where it can be located and how it is applied in scenarios where defamation has occurred.

Defamation, which is the generic name for the torts of slander and libel, is an area of tort which has two names according to Stanton [1] . He states that the first of these two aims is to provide a remedy with which a person can protect his or her reputation from attack. This particular role of the tort of defamation aims to safeguard a person’s reputation rather than his or her privacy. The tort of defamation provides a remedy against the publication of untruths as opposed to unfair revelations of long forgotten truths or intrusions into a person’s private life. The second aim of the tort of defamation is to protect the right of freedom of speech and thus the ability of the press to investigate, and to bring to the public’s attention, malpractice. Stanton [2] is of the view that there can be no doubt that both of these aims of the law of defamation can conflict and that the attempt to maintain a proper balance between them is one of the explanations for the complexity of this particular area of tort law. Giliker and Beckwith [3] agree with Stantion in recognising that the law of defamation must therefore attempt to balance the competing rights of freedom of expression and protection for one’s reputation. They are of the opinion that the only way to approach defamation is logically and in stages: (a) is the statement defamatory? (b) Does it refer to the claimant? (c) Has it been published? (d) Do any of the defences apply?

Jones [4] states that the tort of defamation protects a person from untrue imputations which harm his reputation with others. He states that it should be distinguished from an untrue statement which does not cause damage to the plaintiff’s reputation but does cause harm. With the law of defamation, if the words complained of are defamatory then there is a presumption that the words complained of are untrue unless proved otherwise by the defendant. It is important to note that with defamation maliciousness is not an element that is essential and the majority of forms of defamation are actionable per se. Jones [5] states that defamation is a very peculiar tort in that it is one of the few forms of civil actions that are still tried with juries. It should be noted that actions for defamation can only be brought in the High Court. Gatley [6] states that: “A man commits the tort of defamation when he publishes to a third person words  Containing an untrue imputation against the reputation of another.”

This definition of defamation does require some form of clarification. Basically, a defamatory imputation is an imputation in a form of words which tends to have the following effect on the claimant. The imputation will lower the claimant in the estimation of fair and right-thinking members of society in general, or it will expose him to hatred, contempt or ridicule, or it will cause the claimant to be shunned and or avoided. An imputation may be defamatory and thus lead to a successful action against the defendant even where the imputation is true. An imputation is not necessarily defamatory where it is deemed to be untrue. Carey [7] also makes the suggestion that defamation is, in fact, a cause of action which seems incapable of having a precise definition. He states that judges have offered definitions only to be criticised by other judges and academics. It was not until the Faulks Committee on defamation [8] recommended the following definition:  “the publication to a third party of matter which in all the circumstances would be likely  to affect a person adversely in the estimation of reasonable people generally.”

Carey [9] states that whatever definition of defamation people wish to use the principles which have already been discussed above are certainly and totally true.  Carey [10] states it is imperative that all communicators must be aware of the tort of defamation. He states that the threat of such an action is probably the most serious curb to media freedom in this country. Those working in the media industry must be alert to the risk of defamation at every stage of the publishing or broadcasting process. Carey goes on to cite several factors which make the risk of a defamation action a particularly serious influence on the media. It is possible to commit the tort even where one is unaware that a person’s reputation is affected by the communication in question. Every person in the chain of communication may be sued for damages by the claimant.

To conclude this section it is vitally important to not that defamation actually takes on two different forms. The two different forms are libel and slander. These two forms are quite different. Libel relates to the written published word and slander is defamation in a transient form such as the spoken word. Libel is actionable per se and is a crime as well as a tort. Slander, which may be subject to certain limited exceptions, has the requirement that the claimant must provide proof of special damage. Special damage is damage which is damage that is qualifiable in monetary terms. Slander can be actionable per se but only in exceptional cases. An example of the exceptional cases concerned are those in which the claimant is imputed to have committed a criminal offence punishable with imprisonment.

The final part of this section that must be considered before the analysis of the impact and effect of the implementation of the European Convention on Human Rights and the Human Rights 1998 on the law of defamation can be discussed and analysed in depth is where the law of defamation located. The law and principles that regulate the law of defamation may be found in the Defamation Acts of 1952 and 1996.

This investigation will now place its emphasis on the analysis of the impact and effect of the implementation of the European Convention on Human Rights and the Human Rights 1998 on the law of defamation. There are two main provisions of this legislation. The first of these main provisions is Article 10 of the European Convention on Human Rights. Article 10 provides that: 1. Everyone has the right to freedom of expression. This right shall include freedom to hold opinions and to receive and impart information and ideas without interference by public authority and regardless of frontiers. This Article shall not prevent States from requiring the licensing of broadcasting, television or cinema enterprises.
2. The exercise of these freedoms, since it carries with it duties and responsibilities, may be subject to such formalities, conditions, restrictions or penalties as are prescribe by law and are necessary in a democratic society, in the interests of national security, territorial integrity or public safety, for the prevention of disorder of crime, for the protection of health or morals, for the protection of the reputation or the rights of others, for preventing the disclosure of information received in confidence, or for maintaining the authority and impartiality of the judiciary.” [11]

Article 10(2) of the European Convention on Human Rights recognises that the right to freedom of expression cannot go unchallenged. Article 10 of the European Convention on Human Rights has now been incorporated into English law by the Human Rights Act 1998. The second of these main provisions may be located in Section 12 of the Human Rights Act 1998. Section 12 makes provision for the freedom of expression and provides as follows:
“(1) This section applies if a court is considering whether to grant any relief which, if granted, might affect the exercise of the Convention right to freedom of expression.
(2) If the person against whom the application for relief is made (“the respondent”) is neither present nor represented, no such relief is to be granted unless the court is satisfied –
(a) that the applicant has taken all practicable steps to notify the respondent; or
(b) that there are compelling reasons why the respondent should not be notified.
(3) No such relief is to be granted so as to restrain publication before trial unless the court is satisfied that the applicant is likely to establish that publication should not be allowed.
(4) The court must have particular regard to the importance of the Convention right to freedom of expression and, where the proceedings relate to material which the respondent claims, or which appears to the court, to be journalistic, literary or artistic material (or to conduct connected with such material), to –
(a) the extent to which –
(i) the material has, or is about to, become available to the public; or
(ii) it is, or would be, in the public interest for the material to be published.
(b) any relevant privacy code.
(5) In this section –
“court” includes a tribunal; and “relief” includes any remedy or order (other than in criminal proceedings).” [12] The Human Rights Act 1998 came into force in the United Kingdom in October 2000 and the purpose and meaning of the Human Rights Act 1998 was to give a form of further effect to the rights and freedoms which have guaranteed by the provisions under the European Convention on Human Rights.

Jones [13] states that it was the Faulks Committee [14] that suggested that the purpose of the law of defamation was to preserve a balance between the individual’s right to protect his reputation and the general right of free speech but it is questionable whether the present law strikes the correct balance. The crux of the problem is very well and quite neatly illustrated in Tolstoy Miloslavsky v. United Kingdom [15] . In this case the plaintiff obtained a declaration from the European Court of Human Rights that libel damages of £1.5 million awarded against him by an English jury amounted to a violation of his right to freedom of expression under Article 10 of the European Convention on Human Rights. Even though the United Kingdom is a signatory to the Convention, however, it has not formally adopted it as part of its constitutional law. Therefore, the decision in Tolstoy Miloslavsky v. United Kingdom [16] can only be symbolic and the plaintiff’s victory pyrrhic. Jones [17] states that on the other hand it is significant that the House of Lords drew heavily on a more generalised common law principle of freedom of speech to justify their decision in Derbyshire County Council v. Times Newspapers Ltd. [18] , but it remains to be seen whether or not this will herald a new era in which, in the absence of a formal constitutional footing, the right to freedom of expression might nonetheless enjoy more positive judicial protection. In Derbyshire County Council v. Times Newspapers Ltd. [19] the plaintiff, a local authority, had brought an action for damages for libel against The Times in respect of two newspaper articles which had questioned the propriety of its financial dealings.

Gatley [20] also reserves a valid opinion regarding the right to free expression. He is of the view that the freedom of expression will provide a powerful restraint on the enforcement of rights to reputation because of the high value placed upon it by the Court. In Lingens v. Austria [21] the court stated that:
“freedom of expression, as secured by paragraph 1 of Article 10, constitutes one of the essential foundations of a democratic society and one of the basic conditions for its progress and for each individual’s self-fulfilment. Subject to paragraph 2, it is applicable not only to ‘information’ or ‘ideas’ that are favourably received or regarded as inoffensive or as a matter of indifference, but also to those that offend, shock or disturb. Such are the demands of that pluralism, tolerance and broadmindedness without which there is no ‘democratic society’.

This means that the right is also to be viewed in broad terms as applying to both information and ideas, opinions and comments as well as objectively verifiable facts.
In order to conclude this study it is essential that the future relationship of the European Convention on Human Rights with United Kingdom be analysed. The present Labour Government gave a commitment in 1997 that European Convention on Human Rights would be incorporated into United Kingdom law. Assuming legislative implementation follows the plans that they announced via a consultation paper [22] it is widely expected that the new domestic Bill of Rights will incorporate the substantive rights in the European Convention on Human Rights and will allow all domestic courts to apply the Convention and to make rulings based on it. Gatley [23] states that this will extend the impact of the Convention in English law [24] by ensuring it can come into play in all cases, including where a statute is clear within its own terms or where common law is settled. Gatley [25] finishes by stating that Convention arguments are also more likely to be raised in United Kingdom courts if it is only to ensure the exhaustion of domestic remedies so as to permit an application to Strasbourg.

Giliker & Beckwith [26] have come to the conclusion that the law of defamation is a difficult and very complex area of law but it is an area of law which is of considerable interest to anyone who is concerned how the law of tort deals with the difficult issues of freedom of expression and the rights of individuals to protect their reputation from attack. Giliker & Beckwith are of the view that although the Defamation Act 1996 has made an attempt to deal with these problems there is quite clearly quite a long way to go until these problems are eradicated. They say that it seems likely that the incorporation of the European Convention on Human Rights into English law by the Human Rights Act 1998 will serve to encourage the debate.

BIBLIOGRAPHY

 

• Tort Law – 8th Edition by B.S. Markesinis & S.F. Deakin. Published by OxfordUniversity Press in 2003.
• Winfield & Jolowicz on Tort – 16th Edition by W.V.H.Rogers. Published by Sweet & Maxwell in 2002.
• The Modern Law of Tort – 1st Edition by K.M. Stanton. Published by Sweet & Maxwell in 1994.
• Gatley on Libel and Slander – 8th Edition. Published by Sweet & Maxwell 1997.
• Gatley on Libel and Slander – 8th Edition. Published by Sweet & Maxwell 1998.
• Obligations: The Law of Tort – 4th Edition by D. G. Cracknell. Published by Old Bailey Press in 2003.
• Maxwell’s Tort – 1st Edition by Paula Giliker & Silas Beckwith. Published by Sweet & Maxwell in 2001.
• Textbook on Torts – 5th Edition by Michael A. Jones. Published by Blackstone Press Limited in 1996
• Media Law – 2nd Edition by Peter Carey. Published by Sweet & Maxwell in 1999.
• Media and Entertainment Law by Peter Carey & Richard Verow. Published by Jordans in 2004.
• Tort: Cases and Materials – 4th Edition by Hepple & Matthews. Published by Butterworths in 1991.

1. The Modern Law of Tort, 1st Edition
2. Ibid 1
3. Tort, 1st Edition
4. Textbook on Torts, 5th Edition
5. Ibid 1
6. Gatley on Libel and Slander, 8th Edition
7. Ibid 5
8. Cmnd. 5909 (1975))
9. Media Law, 2nd Edition
10. Media Law, 2nd Edition
11. Article 10, European Convention on Human Rights
12. Section 12, Human Rights Act 1998
13. Textbook on Torts, 5th Edition
14. Cmnd 5909 (1975)) at  paragraph 19
15. [1995] 20 EHRR 442
16. Ibid 10
17. Textbook on Torts, 5th Edition
18. [1993] 1 ALL ER 1011
19. [1993] 1 ALL ER 1011
20. Gatley on Libel and Slander, 9th Edition
21. App. No. 9815/82,  Ser. A. Vol. 103 (1986) 8 E.H.R.R. 407 at para. 41
22. Bringing Rights Home [1997] E.H.R.L.R. 71
23. Gatley on Libel and Slander, 9th Edition
24. “The coming of age of the European Convention on Human Rights” [1996] E.H.R.L.R. 18
25. Ibid 23
26. Tort, 1st Edition

Equity and Trusts (Answering Problem Questions)

Advise one of the senior partners in your firm of solicitors on the legal issues in ALL of the following situations:

(a) Horatio & Isabella are the trustees of the Grant family trust. They ask if they are able to delegate their trust investment decisions to Kerry & Luis. Luis is a retired landscape designer & Kerry is a waitress. (500 words)

(b) Marco, aged 18, is a beneficiary of the foster family trust. His mother asked the trustees to advance some of the capital fund to Marco ahead of time. Marco consented to this because his mother who squandered it on her extravagant lifestyle. The trust instrument provides that the trustees shall not be liable for any breach of trust howsoever caused. (600 Words)

(c) Quickbuild Ltd is a property development company. They employ cost-It Ltd as their surveyors. Walter is one of Cost-its surveyors. He goes to value a development plot for Quickbuild. Walter then tells his friend Victoria about the plot. Victoria goes ahead & successfully outbids Quickbuild for the plot. (500 Words)

(d) Zebedee & Amma are trustees of the Bowood family trust. Tom Bowood is one of the beneficiaries. Clement is a solicitor to the trust. The Bowood trust has a 20% shareholding in Dunn Company. Tom & Clement asked the Dunn Company for information they both acquire shares in Dunn Company. Tom & Clement are both voted onto board of directors of Dunn Company & earn substantial fees as directors. The company's profitability increases significantly & a profit is made by all shareholders. (600 Words)

(e) Paulo took bribes & secret commissions whilst a trustee of the Quicksilver trust. He spent the bribe money & commissions on a racehorse which is now worth double the price he paid. Paulo is insolvent. (600 Words)

(f) Theo is the chief executive of the Supacash Bank. In 2003 he instructed Selma, a senior executive at the bank, to transfer £3 million of bank funds into a newly established account entitled 'Theodore Enterprise'. Selma followed the instructions & transferred the fund. It now appears the £3 million has been used fraudulently by Theo, for his own purposes, in the following ways: Theo gave his wife £1 million. She spent £500,00 paying off her mortgage. The remaining money has been sent on holidays, clothes & luxury lifestyle. Theo put the other £2 million into a company account. The company business involves selling holiday homes to the public. Theo took a further £6 million from prospective purchasers & placed it the same account. No homes were actually built.
Theo withdrew £2 million from the account in January 2004 & purchased property in Australia. In February 2004 Theo withdrew the remaining £6 million & used £1 million to pay a life insurance premium. The remaining £5 million was then passed to Grabbit Accountancy Ltd who passed it through a series of accounts & it eventually ended up in a bank in the Cayman Islands. Theo went to the Cayman Islands in March 2004 to access the money. He spent £1 million gambling at a casino & the rest of the money has been dissipated. Theo has made further deposits into this account & the balance stands at £1 million. Theo died in April 2004. The beneficiaries of the life insurance policy are Theo's two children's & his wife. Theo's will leaves all his property to his wife. Advise the Supercash Bank & the investors who did not receive the holiday homes they thought they were purchasing. (1000 Words)

Horatio & Isabella

The general duty of trustees is the maxim “delegate’s non potest delegare” – the person to whom responsibility has been delegated may not delegate the responsibility to another. In other words, a trustee must provide personal service to the trust. However in Re Chetwynd’s Settlement. [1] Farewell J stated that “No trustee accepts the responsibility for the term of his natural life, or for more than a reasonable period.” It is important to note, however, that Horatio and Isabella cannot retire on a whim and in some circumstances retirement will not be a valid unless a new trustee is appointed in their place. There are various ways in which Horatio and Isabella could go about retiring from the trust and appointing Kerry and Luis in there place.
Horatio and Isabella may retire if the trust instrument entitles them to so and if it does not then whenever the court approves an application for retirement. The Trustee Act 1925 also details two other modes of retirement.
Horatio and Isabella may apply for Kerry and Luis to become trustees under the Trustee Act 1925 s36 which allows for the appointment of a new trustee or trustees “in the place of” a trustee “desiring to be discharged.” The important point to note is that a retirement purported to be carried out in pursuance of this section will only be valid to discharge the trustee if at least one new trustee has been appointed in their place as is the case here. This is of course as long as the trust instrument does not contain instructions to the contrary.
Horatio and Isabella may also be able to retire under s39 of the Trustees Act and this will permit their retirement without the appointment of Kerry and Luis. The circumstances in which this can happen are retirement by deed; the trustee must obtain the consent of the other trustees and any person who is empowered to appoint new trustees; such consent must be given by deed and most approve of the retirement and of the vesting of the property in the remaining trustees alone and the retirement will only be valid if two trustees remain or a trust corporation remains after the retirement.
A trustee continues to be liable for breaches of trust that occur after they have attempted to retire if their “retirement” was technically defective. If however the retirement was valid then they will only be liable for breaches of trust which occurred when they were a trustee.
Horatio and Isabella may also retire from their position with leave of the court. The court may order the retirement of a trustee when exercising its power under s41.There is also an inherent power for the court to allow retirement. The court will not use this inherent power if it would result in the trust being left with no trustee, and this would not be the case here as there are two trustees to replace the existing trustees and therefore an order of the court may be obtained.
It should be briefly considered whether or not Luis and Kerry can be trustees. The general rule is that anyone who has the legal capacity to hold property may be a trustee including corporations and married women .A minor is not capable of being a trustee so as long as Kerry is other the age of majority then it should be acceptable for Luis and Kerry to become trustees.

 

Marco

Marco is entitled to an advancement of the trust money under the Trustee Act 1925 [2] which provides t hat trustees may apply capital money for the advancement or benefit of a beneficiary, regardless of whether that beneficiary is an infant or an adult. Advancement is “the establishment in life of the beneficiary who was the object of the power or at any rate some step that would contribute to the furtherance of his establishment [3].
Section 32(1) (a) provides that the money paid for the advancement or benefit of the beneficiary “shall not exceed altogether in amount one-half of the presumptive or vested share or interest of that person in the trust property.”Therefore the trustees may only advance to Marco one half of the presumptive (that is the amount that Marco is expected to receive when t he money becomes vested in him) of his share in the trust property. Furthermore under section 32(1)(c) the trustees will not be permitted to make a payment by way of advancement if to do so would prejudice any person with a prior interest in the fund , unless the person with the prior interest gives their consent in writing to the advancement. It is assumed that all the factors listed have been satisfied in this scenario apart from the issue of advancement- can the money forwarded to Marco be considered to be “the establishment in life of the beneficiary who was the object of the power or at any rate some step that would contribute to the furtherance of his establishment?” The following factors should be considered by the trustees when considering whether or not to advance the money. The first factor is the benefit to the beneficiaries; the trustees should ask themselves when considering an exercise under s32 “will the application of capital moneys be for the benefit of the beneficiary [4].” However, the most important thing to consider as in this scenario is that the power to make advancement is a fiduciary power and therefore the trustees must weigh, against the benefit to the advance, the interests of other persons entitled under the trust. [5]
The trustees must make sure the capital moneys paid to the advancee are used by the advancee for the use intended by the trustees. “They [the trustees] cannot…. Prescribe a particular purpose, and then raise and pay the money over to the advancee leaving him or her entirely free, legally and morally, to apply it for the purpose or to spend it in any way he or she chooses, without any responsibility on the trustee even to inquire as to its application. [6]”
Therefore the trustees cannot simply hand over the money to Marco and then wash their hands of the affair. They have a duty to make enquiries as to how the moneys are actually spent. They have a duty to supervise and oversee what Marco does with his money. If the moneys are not used for the prescribed purpose, and the trustees receive notice of this fact, they will be under a duty not to make further advances to Marco in the future without his first satisfying them that the money will be properly applied. It is unlikely that following the decision in Re Pauling that the trustees will be able to evade liability for this breach of trust despite a clause to the contrary.

Victoria, Walter and Quickbuild

Quickbuild may have a claim against Walter for unauthorised profits. [7] It may be that Walter will be treated as a constructive trustee “by reason of the fiduciary position in which [he] stood.” [8]
It must first be established whether or not Walter had a fiduciary relationship with Quickbuild. This can be established as Walter is working for Quickbuild on behalf of his company Cost-it Limited and therefore is privy to information which is confidential and to a degree has a monetary value.
A fiduciary must not place himself in a position where his interest and duty conflict [9] .Similarly a fiduciary must not profit from his fiduciary position. If this does occur then any personal gain attributable to the fiduciary position must be held on constructive trust for the persons to whom the fiduciary relationship is owed, in this case Quickbuild [10].
This is because a fiduciary owes clear and strict duties to administer the assets for the benefit of those entitled to equity to that property or assets. In order to ensure that these duties are honoured in full, there is virtually an absolute bar against the trustee using his position for personal gain. Liability will be imposed on Walter irrespective of any intentional deceit, recklessness, or negligence on his part. [11] It will be enough that Walter has placed himself in a position where his duty to the trust has conflicted with his own interest.
It is useful to look at similar situations where the court has imposed a constructive trust on a fiduciary because of a conflict of interest and duty in a business context. Examples include where fees were paid to company directors who hold those directorships because of their legal ownership of trust shares must be held on trust for the beneficiaries [12] and where an army sergeant was held constructive trustee of monies received for escorting vehicles unsearched through army checkpoints. [13]
If there exists a good motive this may mean that a fiduciary is entitled to receive equitable remuneration for her skill in achieving a profit, even though the profit itself must be held on trust for the beneficiaries. [14] This is not the case here and therefore as Lord-Browne Wilkinson stated:
“The court may by way of remedy impose a constructive trust on a defendant who knowingly retains the property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences, such as a change of position, are capable of being given effect.” [15]
In conclusion this information was held on a constructive trust by Walter and Victoria may be liable to Quickbuild to account for profits.

Zebedee & Amma

It has been made clear in a line of cases that if a trustee is appointed a director of a company by reason of the fact that he is the legal owner of the shares, that is, he holds the shares on trust for others, any fees thereby received by way of remuneration must be held on the same trusts for the beneficiaries [16] .The trustee is under an obligation to account as a constructive trustees for any profits received by virtue of the trusteeship.
A trustee is under an obligation to account as constructive trustee for any profits received by virtue of the trusteeship. [17] However a director trustee is not bound automatically to hold any person profits on trust for the beneficiaries, but only after proper enquiry as to the facts of the particular case. Thus, if Tom and Clement became directors without reliance on the trust shares, they may maintain their substantial fees, even if the shares thereafter help them to maintain their position. [18]
In addition to this point it would seem that Tom and Clement obtained their shareholding from information supplied to them by Zebedee and Amma If this private purchase was made because of their position as trustees (or in Clement’s case as a result of his fiduciary relationship as solicitor to the trust) then there is a possibility that they will be deemed to be constructive trustee of the shares themselves, in a similar fashion as the result in Boardman v Phipps [19] In this case, a solicitor was held to be constructive trustee of profits made in certain share transactions because he had acquired the knowledge and opportunity to buy the shares by virtue of his fiduciary position. If this is the case with Tom and Clement then not only will he hold his directors remuneration on trust for Zebedee and Amma, but any dividends will also pass to the beneficiaries also, as income from the trust property. However if there is a provision in the trust instrument authorising Tom and Clements to receive remuneration for the performance of their duties [20] as trustee and solicitor of the trust respectively then they may be able to retain some of the fees and if they are acting “in a professional capacity” they may be able to claim “reasonable remuneration” under s29 (2) of the Trustee Act 2000, if the other trustees agrees and in writing. Similarly if they have behaved honestly and fairly throughout, the court might exercise its inherent jurisdiction to award them a sum by way of equitable compensation.
The beneficiaries of Quicksilver may have a claim against Paulo for unauthorised profits. [21]
A trustee must not place himself in a position where his interest and duty conflict [22] .Similarly a fiduciary must not profit from his fiduciary position. If this does occur then any personal gain attributable to the fiduciary position must be held on constructive trust for the beneficiaries of the Quicksilver trust [23].
This is because a trustee owes clear and strict duties to administer the assets for the benefit of those entitled to equity to that property or assets. In order to ensure that these duties are honoured in full, there is virtually an absolute bar against the trustee using his position for personal gain. Liability will be imposed on Paulo irrespective of any intentional deceit, recklessness, or negligence on his part [24] .It will be enough that Paulo has placed himself in a position where his duty to the trust has conflicted with his own interest. Therefore as Lord-Browne Wilkinson stated:
“The court may by way of remedy impose a constructive trust on a defendant who knowingly retains the property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences, such as a change of position, are capable of being given effect. [25] ” It is clear from the case law that where a person who is a trustee or who holds a fiduciary relations takes a bribe the money will be held on constructive trust for the person(s) to whom the fiduciary duty is owed [26]
Therefore the money that Paulo misappropriated from the fund will be held on constructive trust for the Quicksilver trust. As Paulo is insolvent it will be difficult for Quicksilver to recover their money. However it may be that t he beneficiaries of the quicksilver trust have a claim on the racehorse through the equitable remedy of tracing. The trigger for a claim of equitable tracing is that the Claimant must have an equitable proprietary interest in property and only an equitable proprietary interest, [1] therefore beneficiaries under the Quicksilver trust will have such a right. Quicksilver beneficiaries must also show that there was in existence a fiduciary relationship. [28] This will occur of course as they are beneficiaries and Paulo a trustee and a trustee –beneficiary relationship is a fiduciary relationship. Thirdly it must be shown that the property of the beneficiaries has been transferred to another person wrongfully as it has here. Fourthly, being a claim in equity, equitable tracing is not possible against a person who is a bona fide purchaser for value of the property [29] , Paulo will not be a bona fide purchaser as he knew that the money he used to purchase the property was not his. In conclusion therefore it is likely that the beneficiaries will be able to trace the money held on constructive trust for them into the race horse that has been purchased by Paulo and this will be very useful to them in light of the fact that Paulo is now insolvent.

Theo

It is evident that Theo is in breach of trust, however it may be difficult to recover the trust property for the beneficiary as Theo is now deceased. Theo held the money for Super Cash and the prospective purchasers on trust, as this is not his money. However now Theo has died it may be that the strangers to the trust owe a duty to these beneficiaries.
Strangers to the trust are persons who are not themselves express trustees of it. While the rule that a trustee or other fiduciary may not profit from that position, the position of strangers is more complex. Only those strangers who inter meddle in the trust will become liable and much depends upon their state of mind when doing so. The stranger to the trust may become a constructive trustee because he or she has assumed the duties of a trustee. [30] In other words, if a stranger takes it upon himself to meddle with the trust property as it he were a trustee, equity will treat him as such a trustee. This is trusteeship de son tort and the essential point is that the person fixed with the liability as a constructive trustee has stepped willing into the shoes of the original trustees or fiduciaries. [31]
There are two ways in which a stranger may become liable and it is necessary to distinguish between personal and proprietary remedies. A person may receive trust property into his hands and may then be required to hold that property on trust and beneficiaries thus acquire a proprietary right against him In addition a stranger may be made personally liable for his involvement in a breach of trust the specific issue in relation to strangers which must concern us here is the state of mind of the stranger necessary to giver rise to such personal liability.
In all of the situations referred to in this scenario the strangers to the trust have received the trust property in their possession and therefore will be liable if at all for receipt and dealing. If they actually receive the property into their hands they will be subject to a proprietary remedy; the beneficiaries will be able to recover the property itself from the stranger unless any of the strangers to the trust can show that they are bona fide purchasers without notice [32]. Notice will be one of the following, actual notice, wilfully shutting one’ s eyes to the obvious; wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; knowledge of circumstances which would indicate the facts to an honest man; and knowledge which would put an honest and reasonable man on inquiry.
The persons whom Theo purchases the property from in Australia can be said to be bona fide purchasers without notice however his Wife, accountants and bank cannot be said to be.
Liability is strict and will be based upon the mere fact of possession of the trust fund, past or present, not upon intentional wrongdoing [33]. Therefore if the property has disappeared the beneficiaries will not be able to recover anything and therefore the beneficiaries will have no claim on the £500,000 that Theo’s wife used to pay off her mortgage or the holidays etc and therefore they will have no claim against Theo’s wife [34] .However the trustees may have a personal right against Theo’s wife as she would have known or at least should have know that the property was wrongly received [35]
In relation to the money that was sent to the accounts who placed Theo’ s money in various bank accounts it is not clear whether or not the claim will lie in knowing receipt or dishonest assistance. It seems clear that the money was passed to the accounts for Theo’s own personal use. This seems to be a case of dishonest assistance [36] .The authorities were fully explored and analysed in the case of Agip (Africa) Ltd v Jackson (1992) and then explained clearly by the Privy Council in Tan. It is now relatively clear that the accountants will be liable as constructive trustees for knowingly assisting in a breach of trust if they were “dishonest” and their actions did indeed facilitate the breach. Of course there are difficulties over the meaning of dishonesty. It is however established only where the defendant knows that the property was trust property or perhaps if he knows that the property belonged to someone else or that he was merely engaged in some dishonest design. It would seem that the accountants would have had to have known where the money had come from and indeed they would have known that some of the money came from uncompleted properties. Undoubtedly, the accountant will attempt to plead that he was merely carrying out his contract with Theo in much the same way as the bank claimed to avoid liability in Lipkin Gorman v Karpnale [37], but this will not be enough and if the court establishes that the accountants were materially involved in the fraud or at least did not care about the possibility that fraud was being perpetrated then they will be liable.
Therefore the prospective purchasers will have a claim against the wife and the accountants and may be able to recover some of their money.

Plan

General

Considering general this assignment and the best approach and relevant sources to use, plan of action: -
1. To review all books on Equity and Trusts Available
2. Read relevant cases following review of books
3. Do Journal Article search and case search on keywords extracted from findings in books? Search will be carried out on Lexis Nexis; Lawtel; Westlaw.
4. Consider rule in each area and apply to problem question.

Question (a)

this is a general question on Retirement of trustees. Will need to research the office of trustee appointment, retirement and removal – how can a trustee retire?
Consider if there are any express powers contained within the trust itself.
Consider the Trustee’s Act 1925 s36 (1) and S39
Consider the powers of the court? Does the court have to improve the retirement of one trustee and the removal of the others?

Question (b)

this is a question dealing with breach of trust. Note that liability for breach of trust is generally strict in the sense that it is enough that the trustee has committed the act or omission which amounts to a breach of trust. It is irrelevant for liability whether the trustee knew he was committing a breach of trust and did so for his own benefit, was reckless as to the possibility of a breach occurring, was negligent of the same or was entirely innocent or honest.
Remains a breach of trust even if he believed he was acting in conformity of the trust – as in Re Diplock (1948) or if he did so in the belief that his action was in the best interests of beneficiaries –
Harrison v Randall (1852)
But see S61 of the Trustee Act 1925
Consider next the power of advancement (as this is what the question refers to and this is where the breach has occurred)
Section 32(1) (a) provides that the money paid for the advancement or benefit of the beneficiary “shall not exceed altogether in amount one-half of the presumptive or vested share or interest of that person in the trust property.”
Consider also the statement of Wilmer J in Re Paulings Settlement Trusts [1963] 3 ALL ER 1 “They [the trustees] cannot…. Prescribe a particular purpose, and then raise and pay the money over to the advancee leaving him or her entirely free, legally and morally, to apply it for the purpose or to spend it in any way he or she chooses, without any responsibility on the trustee even to inquire as to its application.”

Question (c)

This question deals with the trustee’s duty not to make unauthorised profits
A fiduciary must not place himself in a position where his interest and duty conflict. If this does occur then any personal gain attributable to the fiduciary position must be held on constructive trust for the persons to whom the fiduciary relationship is owed. [38]
Note that .Liability will be imposed irrespective of any intentional deceit, recklessness, or negligence on the trustee’s part. [39]

Question (d)

Constructive trusts imposed on persons already in fiduciary position in order to ensure that any profit made by virtue of that position is not retained
There is a duty to the trust but self-interest to keep the profits, thus merits of trustees action are not determinative of their right to keep a profit
Consider the various circumstances in which liability can arise
Consider cases that clearly establish that if a trustee is appointed a director of a company by reason of the fact that he is the legal owner of the shares, that is, he holds the shares on trust for others, any fees thereby received by way of remuneration must be held on the same trusts for the beneficiaries. [40]
Trustee Act 2000 Section 69

Question (e)

Consider the following key points that:-
A trustee must not place himself in a position where his interest and duty conflict [41].
A fiduciary must not profit from his fiduciary position. If this does occur then any personal gain attributable to the fiduciary position must be held on constructive trust for the beneficiaries. [42]
Important obiter dictum:
“The court may by way of remedy impose a constructive trust on a defendant who knowingly retains the property of which the plaintiff has been unjustly deprived. Since the remedy can be tailored to the circumstances of the particular case, innocent third parties would not be prejudiced and restitutionary defences, such as a change of position, are capable of being given effect. [43]”
Then consider the remedy of tracing – equitable in particular – what needs to be shown?
The trigger for a claim of equitable tracing is that the Claimant must have an equitable proprietary interest in property and only an equitable proprietary interest. [44]
Secondly beneficiaries must also show that there was in existence a fiduciary relationship [45]
Thirdly it must be shown that the property of the beneficiaries has been transferred to another person wrongfully as it has here.
Fourthly, being a claim in equity, equitable tracing is not possible against a person who is a bona fide purchaser for value of the property. [46]

Question (f)

this question is concerned primarily with the stranger to the trust and any liabilities that they may have.
Stranger to the trust may become a constructive trustee in four situations:
1. by honestly assisting the trustee in breach of trust;
2. by receiving trust property for his own use in the knowledge that it was transferred in breach of trust;
3. After having received trust property in conformity with the terms of the trust, by knowingly dealing with that property in breach of the terms of the trust; and
4. By inducing the trustee to commit a breach of trust
Only those strangers who inter meddle in the trust will become liable and much depends upon their state of mind when doing so.
Consider the two different ways in which a stranger may become liable and the difference between personal and proprietary remedies.
A person may receive trust property into his hands and may then be required to hold that property on trust and beneficiaries thus acquire a proprietary right against him. In addition a stranger may be made personally liable for his involvement in a breach of trust the specific issue in relation to strangers which must concern us here is the state of mind of the stranger necessary to giver rise to such personal liability.
The stranger to the trust may become a constructive trustee because he or she has assumed the duties of a trustee. [47] In other words, if a stranger takes it upon himself to meddle with the trust property as it he were a trustee, equity will treat him as such a trustee. This is trusteeship de son tort and the essential point is that the person fixed with the liability as a constructive trustee has stepped willing into the shoes of the original trustees or fiduciaries. [48]
Consider the differences between knowing receipt and dealing
Dishonest assistance and the lack of clarity in this area of law, very fine line sometimes and most decisions appear to turn on own merits rather than providing clarity on the law.
Consider the basis of the liability for knowing assistance and dishonest receipt
Confirmation that some degree of fault is required: Royal Brunei Airlines v Tan
Inconsistent dealing – consider the level of knowledge that is required and the meaning of dishonest – what degree of awareness is needed for dishonesty?

Bibliography 

 

Cases

• Aberdeen Town Council v AberdeenUniversity (1877) 2 App Cas 544
• Agip (Africa) v Jackson [1992] 4 ALL ER 385
• Attorney-General for Hong Kong v Reid [1992] 2 NZLR 385
• Baden Delvaux and Lecuit v Societe Generale pour Favouriser Le Developpment du Comerce et L’Industrie en france SA [1983] BCLC 325
• Barnes v Addy [1974] 9 Ch App 224
• BCCI v Akindele [2000] 4 ALL ER 221
• Boardman v Phipps [1967] 2 AC 46
• Bray v Ford [1896] AC 44
• Brink’s-Mat v Elcombe [1988] 3 ALL ER 188
• James v Williams [1999] 3 WLR 451
• Jyske Bank v Heini (1999) Lloyd’s Rep Bank 511
• Mara v Browne [1896] 1 Ch 199
• Pilkington v IRC [1964] AC 612
• Re Diplock [1948] Ch 465
• Re Dover Coalfield Extension [1908] 1 CH 65
• Re Francis (1905) 92 LT 77
• Re Gee [1948]Ch 284
• Re Macadam [1946] Ch 73
• Re Moxon’s Will Trust [1958] 1 ALL ER 386
• Re Paulings Settlement Trusts [1963] 3 ALL ER 1
• Regal (Hastings ) Ltd v Gulliver [1942] ALL ER 378
• Re Montagu’s Settlement Trusts [1987] Ch 264
• Royal Brunei Airlines v Tan [1995] 3 ALL ER 97
• Westdeutsche Landesbank v Girozentrale v Islington London Borough Council [1996] AC 669
• Statutes
• Trustee Act 1925
• Trustee Act 2000
• Books
• Andrews G, (2003), The Redundancy of Dishonest Assistance, Sweet and Maxwell
• Chang C, (2003), Equity and Trusts, Sweet and Maxwell, Third Edition
• Edwards R & Stockwell N, (2004), Trusts and Equity, Longman Press, Sixth Edition
• Hayley M (2004), Equity and Trusts, Sweet and Maxwell, Sixth Edition
• Pearce R, (2002), The Law of Trusts and Equitable Obligations, Butterworths, Third Edition
• Ramjohn M, (2004), Cases and Materials on Trusts, Cavendish, Third Edition
• Watt G, (2003), Textbook: Trusts, OxfordUniversity Press

1. [1] [1902] 1 Ch 692
2. [2] S32
3. [3] See Viscount Radcliffe in Pilkington v IRC [1964] AC 612
4. [4] See Dankwerts J in Re Moxon’s Will Trust [1958] 1 ALL ER 386 for a definition of benefit
5. [5] Re Paulings Settlement Trusts [1963] 3 ALL ER 1
6. [6] Wilmer J in Re Paulings Settlement Trusts [1963] 3 ALL ER 1
7. [7] Boardman v Phipps [1967] 2 AC 46
8. [8] Barnes v Addy [1974] 9 Ch App 224
9. [9] Bray v Ford [1896] AC 44
10. [10] Aberdeen Town Council v AberdeenUniversity (1877) 2 App Cas 544
11. [11] Regal (Hastings ) Ltd v Gulliver [1942] ALL ER 378
12. [12] Re Francis (1905) 92 LT 77; Re Macadam [1946] Ch 73
13. [13] Regal (Hastings ) Ltd v Gulliver [1942] ALL ER 378
14. [14] Boardman v Phipps [1967] 2 AC 46
15. [15] Westdeutsche Landesbank v Girozentrale v Islington London Borough Council [1996] AC 669
16. [16] Re Francis (1905) 92 LT 77 Re Macadam [1946] Ch 73
17. [17] Re Dover Coalfield Extension [1908] 1 CH 65
18. [18] Aberdeen Town Council v AberdeenUniversity (1887) 2 App Cas 644
19. [19] Boardman v Phipps [1967] 2 AC 46
20. [20] Re Gee [1948]Ch 284
21. [21] Boardman v Phipps [1967] 2 AC 46
22. [22] Bray v Ford [1896] AC 44
23. [23] Aberdeen Town Council v AberdeenUniversity (1877) 2 App Cas 544
24. [24] Regal (Hastings ) Ltd v Gulliver [1942] ALL ER 378
25. [25] Westdeutsche Landesbank v Girozentrale v Islington London Borough Council [1996] AC 669
26. [26] Attorney-General for Hong Kong v Reid [1992] 2 NZLR 385
27. [27] Re Diplock [1948] Ch 465
28. [28] Westdeutsche Landesbank v Girozentrale v Islington London Borough Council [1996] AC 669
29. [29] Re Diplock [1948] Ch 465
30. [30] Mara v Browne [1896] 1 Ch 199
31. [31] James v Williams [1999] 3 WLR 451
32. [32] Baden Delvaux and Lecuit v Societe Generale pour Favouriser Le Developpment du Comerce et L’Industrie en france SA [1983] BCLC 325
33. [33] Royal Brunei Airlines v Tan [1995] 3 ALL ER 97
34. [34] See Agip (Africa) v Jackson [1992] 4 ALL ER 385
35. [35] See for example Re Montagu’ s Settlement Trusts [1987] Ch 264; and BCCI v Akindele [2000] 4 ALL ER 221
36. [36] See Brink’s-Mat v Elcombe [1988] 3 ALL ER 188; Jyske Bank v Heini (1999) Lloyd’s Rep Bank 511
37. [37] [1991] 2 AC 548
38. [38] Aberdeen Town Council v AberdeenUniversity (1877) 2 App Cas 544
39. [39] Regal (Hastings ) Ltd v Gulliver [1942] ALL ER 378
40. [40] Re Francis (1905) 92 LT 77 Re Macadam [1946] Ch 73
41. [41] Bray v Ford [1896] AC 44
42. [42] Aberdeen Town Council v AberdeenUniversity (1877) 2 App Cas 544
43. [43] Westdeutsche Landesbank v Girozentrale v Islington London Borough Council [1996] AC 669
44. [44] Re Diplock [1948] Ch 465
45. [45] Westdeutsche Landesbank v Girozentrale v Islington London Borough Council [1996] AC 669
46. [46] Re Diplock [1948] Ch 465
47. [47] Mara v Browne [1896] 1 Ch 199
48. [48] James v Williams [1999] 3 WLR 451

 

The Constitutional Law

 The Constitutional Reform Act was intended to represent a move away from the traditional 'fusion' model of the British constitution and towards what was said to be a more explicit separation of powers. Discuss.

Constitutional law is the laws and political policies that govern the United Kingdom, giving procedures relating to authorities and regularities, although, the United Kingdom has no written constitution, it still has to abide by the rules that were put in place to look after civilians and the state, “the result of centuries of legal precedent. Dicey called this a judge-made constitution and he viewed this form of constitution to be superior to a written constitution”, (boulet, 2002) therefore defending the rights of the individuals, the constitution is said to originate from around the time of Oliver Cromwell, although it is also said that it was established around the time of the Battle of Hastings with the constitution as being one of parliamentary sovereignty.
When we actually study the constitution that the United Kingdom has, it is believed that one rules with definitive control, for example, a monarch or prime minister, this though, is clearly not the case, as the UK has both monarch and prime minister and one such reason that can be found for this, is the separation of powers.

The separation of powers is a procedure which excludes solitary rule by a single individual, thus avoiding the situation of living under the rule of a dictatorship, with the separation, this means, that if one person or section of the government, wanted to take complete power, they would fail as the separation restricts this from happening, by delegating three different branches, certain powers, no power exceeding the other.
So with the UK constitution clearly being split into three completely different sections, the legislature, the executive and the judiciary, these sections each inherit there own power, with no single power being greater than the other, although it is argued that the executive is the most prominent of the three, although, these sections from time to time are required to work together, with the purpose of forming a strong and resilient government, this was highlighted by Baron Montesquieu (1689-1755) who said that ”for the different interests to cooperate, this would prevent any power being used excessively”. (Alder, 2007)

Therefore meaning that each branch has different functions, but the same power to restrict the limits of each other, whilst it could be alleged that in modern Britain, certain sections are without a doubt more powerful than the others, for instances, the executive is viewed as the most influential, by the way in which it managers the legislature and the judiciary, with the consent of the monarch and in addition it also obtains the resources of the state, these comprise of resources such the armed forces, the police and local councils, therefore saying that all the power in contained with-in the executive, giving it power to rule as one.

Montesquieu views in the past have come under criticism though, due to the inaccuracies in which they contain, “as it represents a description of an idealised state than in reality”. (Barnett, 2004) He also believed that the separation of powers would cause strain and interfere with the balance of the government; this is why Montesquieu places so much emphasis on just a partial separation, “which appears to have been endorsed by UK judges e.g. Lord Templeman in M v Home Office [1993] 3 all ER 537, 540”, (Alder, 2007) in which a citizen of Zaire, seeking asylum resulted in “a mandatory interim injunction against an officer of the Crown, had been made without jurisdiction”. (M. v. HOME OFFICE, 1993)

This is also echoed in the fact that being ruled by parliament or a sovereign would render a total separation unworkable, leading to constitutional stalemate, suggesting that there would then be three ruling bodies. With a partial separation, the three sections would still be able work, but without making each others decisions, the term for this is what’s known as, checks and balances, these checks though, along with the separation of powers don’t always run smoothly, the biggest problem noted for causing confusion, is the position of the lord chancellor, when first created, the primary role of the lord chancellor, was to rule over parliament, but in more recent times, more roles were added, these included the judiciary, lord speaker and lord chief justice, thus breaching the separation of powers, as he is a member of two separate organizations with-in the constitution.

The position of the Lord Chancellor, is one of much debate, concerning the UK constitution, as when created, the position was one of immense importance, some would say, even more superior to that of the prime minister, although, its the prime minister that appoints the Chancellor, therefore becoming a contradiction, it appears that the role of the Lord Chancellor was one of devious nature, giving the executive a mean of controlling the other two branches, as one such branch in control of the others would infringe the separation, so the position creates a way of gaining control.
Due to this, the position of the Lord Chancellor was abolished and replaced with the “judicial appointments commission to take over the Lord Chancellor’s role in appointments”, (Barnett, 2004) although the role of the Lord Chancellor has changed, he still has a significant position, supervising the constitution, although he is just a member of parliament and “no longer a judge nor exercises any judicial functions” (Crown, 2005) therefore, he is no longer resident in the House of Lords.

There’s also the issue of the delegate, as “delegated or secondary legislation raises important questions related to the separation of powers” this basically denoting that laws and other regulations can be enacted by the local governments, therefore, becoming an abuse of power, with the power of the legislature being used by the executive in a way that would undermined the rule of parliament.
Other issues that have arisen, for instance may well be that parliament, also has the power to intervene and change a ruling made in legal cases, it appears, that parliament make laws and not the judges, they just interpret it, this is where precedent comes from, president meaning, the following of previous legal decisions, although judges can change the decision, and in addition “it is also able to reflect changes in society”. (Barnett, 2004) While the common law system, tends to propose that judges are lawmakers, and not just bodies implementing parliament’s wishes as previously thought.

And then there’s Parliament, or more specifically prime ministers, past prime ministers, “where departing prime ministers nominate whoever they like for a peerage without checks on the candidates’ suitability”, (Schofield, 2007) this is what happened in the case of peter mandelson, a way of getting him in the government, due to him already being involved in the European Union.
Due to these and many other problems with the separation, the Constitution Reform Act 2005 was introduced, which will give construction to the supreme court in 2009, with the key motivation being to guarantee the separation between the legislative and judiciary, this is intended to provide the public with more confidence in the legal system, as this is evidently absent at present, but this can be seen as just masking over the problem, giving the public a perception that everything is right. Also this act also aims at giving judicial independence in which “the Act enshrines in law a duty on government ministers to uphold the independence of the judiciary. They will be specifically barred from trying to influence judicial decisions through any special access to judges” ( dca.gov.uk)

Furthermore, there’s parliamentary supremacy, this being that the party in control, have the ability by the majority vote to enact policies that it feels would benefit the constitution “perhaps the biggest road-block to the establishment of a clear constitutional order in the UK is the doctrine of Parliamentary Supremacy which means that Parliament is supreme in all matters”. (modernising the magna carta, 2008)
So with the separation of powers, this represents the vision of a good government structure, by the way in which it has distributed the powers equally, thus becoming ineligible from instability, creating a fair and balanced government, as this offers a excellent arrangement for the government and also the public and what's more protects public interest from exploitation by governments and their policies. Because in reality the government has a whole load of powers at its disposal, including powers such as the royal prerogative, monarchy powers entrusted in members of parliament, e.g. powers to go to war and that MP’s can obtain the crown immunity, as technically they are members endorsed by the crown.

Bibliography

dca.gov.uk. (n.d.). Retrieved 12 13, 2008, from Constitutional Reform Act 2005 : http://www.dca.gov.uk/legist/constreform.htm
Alder, J. (2007). Constitutional and Administrative Law. Basingstoke: Palgrave Macmillan Law Masters.
Barnett, H. (2004). constitutional & administrative law. london: cavendish publishing.
boulet. (2002, 10 16). Dicey's views on the rule of law and the supremacy of parliament. Retrieved 12 11, 2008, from everything2.com: http://everything2.com/index.pl?node_id=1373964
Crown. (2005, 06 25). CONSTITUTIONAL REFORM ACT 2005. Retrieved 12 13, 2008, from opsi.gov.uk: http://www.opsi.gov.uk/acts/acts2005/en/ukpgaen_20050004_en_1
explore parliament. (1999). Retrieved 12 13, 2008, from parliament.uk: http://www.explore.parliament.uk/Parliament.aspx?id=10067&glossary=true
modernising the magna carta. (2008, 02 13). Retrieved 12 13, 2008, from ministry of justice: http://www.justice.gov.uk/news/sp130208a.htm
Schofield, A. (2007, 7 8). mandelson to be made lord. Retrieved 2 15, 2008, from timesonline: http://www.timesonline.co.uk/tol/news/politics/article2042340.ece

Cases

M. v. HOME OFFICE, 377 (A.C. 06/07 10, 11, 12, 13, 17, 18, 19, 27, 1993).

FORMATION OF A CONTRACT

Introduction to Formation of a Contract

A contract may be defined as an agreement between two or more parties that is intended to be legally binding.
The first requisite of any contract is an agreement (consisting of an offer and acceptance). At least two parties are required; one of them, the offeror, makes an offer which the other, the offeree, accepts.

OFFER

An offer is an expression of willingness to contract made with the intention that it shall become binding on the offeror as soon as it is accepted by the offeree.
A genuine offer is different from what is known as an "invitation to treat", ie where a party is merely inviting offers, which he is then free to accept or reject. The following are examples of invitations to treat:

1. AUCTIONS

In an auction, the auctioneer's call for bids is an invitation to treat, a request for offers. The bids made by persons at the auction are offers, which the auctioneer can accept or reject as he chooses. Similarly, the bidder may retract his bid before it is accepted. See:

• Payne v Cave (1789) 3 Term Rep 148

2. DISPLAY OF GOODS

The display of goods with a price ticket attached in a shop window or on a supermarket shelf is not an offer to sell but an invitation for customers to make an offer to buy.

3. ADVERTISEMENTS

Advertisements of goods for sale are normally interpreted as invitations to treat.
However, advertisements may be construed as offers if they are unilateral, ie, open to all the world to accept (eg, offers for rewards).

4. MERE STATEMENTS OF PRICE

A statement of the minimum price at which a party may be willing to sell will not amount to an offer. See:

• Harvey v Facey [1893] AC 552

5. TENDERS

Where goods are advertised for sale by tender, the statement is not an offer, but an invitation to treat; that is, it is a request by the owner of the goods for offers to purchase them

ACCEPTANCE

An acceptance is a final and unqualified acceptance of the terms of an offer. To make a binding contract the acceptance must exactly match the offer. The offeree must accept all the terms of the offer.
However, in certain cases it is possible to have a binding contract without a matching offer and acceptance. See:

• Brogden v Metropolitan Railway Co. (1877) 2 App Cas 666
• Lord Denning in Gibson v Manchester City Council [1979] above
• Percy Trentham Ltd v Archital Luxfer Ltd [1993] 1 Lloyd's Rep 25.

The following rules have been developed by the courts with regard to acceptance:

1. COUNTER OFFERS

If in his reply to an offer, the offeree introduces a new term or varies the terms of the offer, then that reply cannot amount to an acceptance. Instead, the reply is treated as a "counter offer", which the original offeror is free to accept or reject. A counter-offer also amounts to a rejection of the original offer which cannot then be subsequently accepted. See:

• Hyde v Wrench (1840) 3 Beav 334.

A counter-offer should be distinguished from a mere request for information. See:

• Stevenson v McLean (1880) 5 QBD 346.

If A makes an offer on his standard document and B accepts on on a document containing his conflicting standard terms, a contract will be made on B's terms if A acts upon B's communication, eg by delivering goods. This situation is known as the "battle of the forms".

2. CONDITIONAL ACCEPTANCE

If the offeree puts a condition in the acceptance, then it will not be binding.

3. TENDERS

A tender is an offer, the acceptance of which leads to the formation of a contract. However, difficulties arise where tenders are invited for the periodical supply of goods:

• (a) Where X advertises for offers to supply a specified quantity of goods, to be supplied during a specified time, and Y offers to supply, acceptance of Y's tender creates a contract, under which Y is bound to supply the goods and the buyer X is bound to accept them and pay for them.
  
• (b) Where X advertises for offers to supply goods up to a stated maximum, during a certain period, the goods to be supplied as and when demanded, acceptance by X of a tender received from Y does not create a contract. Instead, X's acceptance converts Y's tender into a standing offer to supply the goods up to the stated maximum at the stated price as and when requested to do so by X. The standing offer is accepted each time X places an order, so that there are a series of separate contracts for the supply of goods. See:
  
• Great Northern Railway Co. v Witham (1873) LR 9 CP 16.

4. COMMUNICATION OF ACCEPTANCE

The general rule is that an acceptance must be communicated to the offeror. Until and unless the acceptance is so communicated, no contract comes into existence:
The acceptance must be communicated by the offeree or someone authorised by the offeree. If someone accepts on behalf of the offeree, without authorisation, this will not be a valid acceptance:

• Powell v Lee (1908) 99 LT 284.

The offeror cannot impose a contract on the offeree against his wishes by deeming that his silence should amount to an acceptance:

• Felthouse v Bindley (1862) 11 CBNS 869.

Where an instantaneous method of communication is used, eg telex, it will take effect when and where it is received. See:

• Entores v Miles Far East Corp [1955] 2 QB 327
• The Brimnes [1975] QB 929
• Brinkibon v Stahag Stahl [1983] 2 AC 34.

5. EXCEPTIONS TO THE COMMUNICATION RULE

• a) In unilateral contracts the normal rule for communication of acceptance to the offeror does not apply. Carrying out the stipulated task is enough to constitute acceptance of the offer.
  
• b) The offeror may expressly or impliedly waive the need for communication of acceptance by the offeree, eg, where goods are dispatched in response to an offer to buy.
  
• c) The Postal Rule - Where acceptance by post has been requested or where it is an appropriate and reasonable means of communication between the parties, then acceptance is complete as soon as the letter of acceptance is posted, even if the letter is delayed, destroyed or lost in the post so that it never reaches the offeror. See:
  
• Adams v Lindsell (1818) 1 B & Ald 681.
• Household Fire Insurance Co. v Grant (1879) 4 Ex D 216.

The postal rule applies to communications of acceptance by cable, including telegram, but not to instantaneous modes such as telephone, telex and fax. The postal rule will not apply:

• (i) Where the letter of acceptance has not been properly posted, as in Re London and Northern Bank (1900), where the letter of acceptance was handed to a postman only authorised to deliver mail and not to collect it.
  
• (ii) Where the letter is not properly addressed. There is no authority on this point.
  
• (iii) Where the express terms of the offer exclude the postal rule, ie if the offer specifies that the acceptance must reach the offeror. In Holwell Securities v Hughes (1974, below), the postal rule was held not to apply where the offer was to be accepted by "notice in writing". Actual communication was required.
  
• (iv) It was said in Holwell Securities that the rule would not be applied where it would produce a "manifest inconvenience or absurdity".

Revocation of posted acceptance.
Can an offeree withdraw his acceptance, after it has been posted, by a later communication, which reaches the offeror before the acceptance? There is no clear authority in English law. The Scottish case of Dunmore v Alexander (1830) appears to permit such a revocation but it is an unclear decision. A strict application of the postal rule would not permit such withdrawal. This view is supported by decisions in: New Zealand in Wenkheim v Arndt (1873) and South Africa in A-Z Bazaars v Ministry of Agriculture (1974). However, such an approach is regarded as inflexible.

6. METHOD OF ACCEPTANCE

The offer may specify that acceptance must reach the offeror in which case actual communication will be required.
If a method is prescribed without it being made clear that no other method will suffice then it seems that an equally advantageous method would suffice. See:

• Tinn v Hoffman (1873) 29 LT 271
• Yates Building Co. v Pulleyn Ltd (1975) 119 SJ 370.

7. KNOWLEDGE OF THE OFFER

An offeree may perform the act that constitutes acceptance of an offer, with knowledge of that offer, but for a motive other than accepting the offer. The question that then arises is whether his act amounts to a valid acceptance. The position seems to be that:

• (a) An acceptance which is wholly motivated by factors other than the existence of the offer has no effect.
  
• R v Clarke (1927) 40 CLR 227
  
• (b) Where, however, the existence of the offer plays some part, however small, in inducing a person to do the required act, there is a valid acceptance of the offer. See:
  
• Williams v Carwardine (1833) 5 Car & P 566.

8. CROSS-OFFERS

A writes to B offering to sell certain property at a stated price. B writes to A offering to buy the same property at the same price. The letters cross in the post. Is there (a) an offer and acceptance, (b) a contract? This problem was discussed, obiter, by the Court in Tinn v Hoffman (1873) 29 LT 271. Five judges said that cross-offers do not make a binding contract. One judge said they do.

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TERMINATION OF THE OFFER

1. ACCEPTANCE

Once an offer has been accepted, a binding contract is made and the offer ends.

2. REJECTION

If the offeree rejects the offer that is the end of it.

3. REVOCATION

The offer may be revoked by the offeror at any time until it is accepted. However, the revocation of the offer must be communicated to the offeree(s). Unless and until the revocation is so communicated, it is ineffective. See:

• Byrne v Van Tienhoven (1880) 5 CPD 344.

The revocation need not be communicated by the offeror personally, it is sufficient if it is done through a reliable third party. See:

• Dickinson v Dodds (1876) 2 ChD 463.

Where an offer is made to the whole world, it appears that it may be revoked by taking reasonable steps. See:

• Shuey v United States [1875] 92 US 73.

Once the offeree has commenced performance of a unilateral offer, the offeror may not revoke the offer. See:

4. COUNTER OFFER

See above for Hyde v Wrench (1840).

5. LAPSE OF TIME

Where an offer is stated to be open for a specific length of time, then the offer automatically terminates when that time limit expires. Where there is no express time limit, an offer is normally open only for a reasonable time. See:

• Ramsgate Victoria Hotel v Montefiore (1866) LR 1 Ex 109.

6. FAILURE OF A CONDITION

An offer may be made subject to conditions. Such a condition may be stated expressly by the offeror or implied by the courts from the circumstances. If the condition is not satisfied the offer is not capable of being accepted. See:

7. DEATH

The offeree cannot accept an offer after notice of the offeror's death. However, if the offeree does not know of the offeror's death, and there is no personal element involved, then he may accept the offer. See:

• Bradbury v Morgan (1862) 1 H&C 249.