Constitution of Trust: No Benevolent Construction

In Deslauriers v Guardian Asset Management Ltd [2017] UKPC 34, an appeal from the Court of Appeal of Trinidad and Tobago, the Privy Council applied the basic rule of trust law that a private trust must be ‘completely constituted’ in order to be valid and enforceable, which means that the legal title to the trust property must be effectively transferred by the settlor to trustees or, alternatively, the settlor must declare himself a trustee of the legal estate for the beneficiaries.

The Deslauriers, defendants/appellants in this case, were property developers who in 2007 entered into a commercial loan agreement with the claimants/respondents (GAM) under which they had borrowed TT$ 18.6 million. They gave promissory notes for repayment and the loan was secured by a demand mortgage of land belonging to them. After default in repayments on the part of the Deslauriers, GAM sued for repayment and interest. The Privy Council upheld the lower courts’ findings of liability under the promissory notes, and the remaining issue concerned the enforcement of the judgment in favour of GAM, who sought an order under the Remedies of Creditors Act, Ch 8:09 for the sale of certain other land owned by Mrs Deslauriers. The latter opposed the proposed order for sale on the ground, inter alia, that this land was held on trust for her son and daughter pursuant to a deed of settlement executed in 2009.

Rahim J, in the Trinidad and Tobago High Court, made an order for the sale of the land, holding that no valid trust of the property had been created, and that both the legal and the beneficial interest remained vested in Mrs Deslauriers. The Deslauriers’ appeal was later dismissed by the Court of Appeal.

On further appeal to the Privy Council, the Board focused attention on the 2009 deed of settlement. Recitals in the deed recorded that ‘The Settlor [Mrs Deslauriers] intends shortly to transfer the Trust Property into the names of the Trustees to be held by the Trustees upon the trusts hereinafter declared’, and ‘The Settlor desires that the Settlement made by this Deed shall take effect immediately upon the execution of this Deed.’ Further clauses enjoined the trustees to hold the trust property on trust to pay the income to the settlor during her lifetime, and thereafter to hold the property for the benefit of the settlor’s two children in equal shares absolutely.

As Mrs Deslauriers never transferred the legal title of the land to the trustees, the Privy Council agreed that the trust was ‘ not completely constituted’ and so had not taken effect (Milroy v Lord (1862) 45 ER 1185, per Turner LJ) and, since equity would not assist a volunteer, the court would not enforce the trust by ordering a conveyance to the trustees. In argument, Mrs Deslauriers’ counsel had sought to rely on Choitram (T) International SA v Pagarani [2001] 1 WLR 1 (a British Virgin Islands case which went on appeal to the Privy Council), in which Lord Browne-Wilkinson had suggested that ‘although equity will not aid a volunteer, it will not strive officiously to defeat a gift’, and Pennington v Waine [2002] 1 WLR 2075, where Arden LJ opined that where a trust was incompletely constituted, the court could adopt a ‘benevolent construction’ of the arrangement and construe it as a trust. The Privy Council considered such an approach to be inapplicable in this case. Mrs Deslauriers’ submission was essentially that her intention was to constitute herself as trustee of the property until such time as it vested in the trustees in accordance with the deed of settlement. The Privy Council held that this was not a justifiable construction of the deed, both because the settlor had not evinced an intention to immediately deprive herself of the beneficial interest, and because the language of the deed showed clearly that her intention was that the property should be held on trust by trustees.

The refusal of the Privy Council and the lower courts to adopt the type of ‘benevolent construction’ regarding the deed of settlement applied in Pagarani and Pennington seems justifiable as, unlike in those two cases, where the objective was to uphold gifts or trusts in the interest of the donees or beneficiaries, the sole issue in Deslauriers was whether the property in question was available to satisfy a debt owed by the settlor, and, in the circumstances, the ‘equities’ were clearly in favour of the creditor.

Gilbert Kodilinye