Equity and Trusts Report: Dishonest Assistance, Charitable Purpose

This report provides an analysis of key concepts within Equity and Trusts. It begins by defining and exploring the legal principle of Dishonest Assistance, referencing the landmark case of Royal Brunei Airlines v Tan [1995] to illustrate its application and the necessary elements required for establishing liability. The report then delves into the concept of Charitable Purpose, specifically focusing on the Relief of Poverty as a charitable objective under English law, and how it aligns with the Charities Act 2006. The report also examines the legal definition of poverty and the criteria that organizations must meet to qualify as charities. Finally, the report discusses the concept of Secret Trusts, outlining their essential elements and how they operate within the framework of trust law. The report aims to provide a comprehensive overview of these complex legal principles.

Exam Work
Equity & Trusts

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Dishonest Assistance accompanied by Case Law Royal Brunei Airlines v Tan [1995]........3
Charitable purpose is the Relief of Poverty............................................................................5
Secret Trust and its Necessary Elements................................................................................7
CONCLUSION................................................................................................................................9
REFERNCES.................................................................................................................................10

INTRODUCTION
The rules formulated under the English Legal System are based on equity which means
fairness. Whereas the Trusts Act is established to regulate situations in which a person places his
or her trust over another person for the purpose of dealing with his or her affairs. The law of
trusts is complementary to the law of property. Further, the law regulates the situations where a
person has legal title to a property and the courts decide whether the property is fair and
equitable1.
Trust creates a legal relationship. It is created by the settlor when the assets are placed under
the control of the trustee and he/ she is required to manage the trust for the benefit of the
beneficiary or a specific purpose. The key features are that it enables the separation of property
from the beneficial interest of the property. Under the legislation, the trustee becomes the owner
of the asset and the beneficiaries expect the trustees to manage the asset in trust for their benefit.
The report examines charity in England and Wales that serves the public interest, including
alleviating poverty. The report also discusses the phrase “dishonest assistance” and the elements
required for a secret trust.
MAIN BODY
Dishonest Assistance accompanied by Case Law Royal Brunei Airlines v Tan [1995]
Dishonest assistance is considered as third party responsibility under the English Trust Act,
and formerly known as knowing assistance. Dishonest Assistance refers to the cause of action in
which the non- trustee is held personally liable for breach, committed by one or more trustees.
Liability arises when non- trustee provides his/ her assistance to the other trustees in breach of
the English Trust Act or leads to such actions which is contrary to law. Thus, in order to be liable
for act causing dishonest assistance: firstly, there must exist a breach of trust or fiduciary duty by
person other than the defendant and secondly, must have provided assistance in the breach
caused with dishonest state of mind. The honesty test is considered to be an objective. Usually
responsibility is easily established, but controversy arises in the determination of the mental
element leading to a dishonest state of mind.
1'Equity. Reformation. Refusal To Reform Mistake In Voluntary Trust Deed In Favor Of Beneficiary' (2020) 26
Columbia Law Review.

The necessary elements of the dishonest assistance are, firstly the Breach of Trust in which
the claimant’s trustee must be responsible for the breach of trust under the legislation. Prior to
this, the liability for dishonest assistance was based on whether the trustee in default is also
dishonest or fraudulent. However, in its ruling of Royal Brunei Airlines v. Tan it was argued that
no such requirement exists in English Trust Law. Second, in the defendant's assistance, the
issue of whether the defendant contributed to the breach of trust in question remains in dispute.
Lastly, the Dishonesty is regarded as an objective. Responsibility is not imposed when the
person acts with fairness and honesty2. The conduct of the defendant shall be determined having
regard to the fact that the defendant committed the offence himself. In general, the aspect of
mens rea is considered when determining criminal liability in the circumstances of the case.
The common belief of dishonest assistance was conceived from the judgment laid down by
Lord Selbourne in his case Barnes v Addy. The judgment formulated liability in two counts, one
based on the receipt of the trust property, considered as known receipt. Under an English Trust
Law, the knowing receipt is doctrine which makes person liable for property received or held by
fiduciary, having the knowledge of being given in breach of trust and further assisting with the
knowledge of the dishonest or fraudulent state of mind, is considered as knowing assistance.
Later, Lord Selbourne's judgement was criticised on the basis of the requirement of the
trustee or fiduciary failing to be dishonest or fraudulent. Liability arises if the accessory acts
dishonestly or fraudulently. While applying the test, it is assumed that a person will not step in
the transaction where there is misapplication of trust assets or any involvement of dishonest
mind, knowing that such will led to breach of law ( in case Royal Brunei Airlines Sdn Bh. v Tan,
19953). Prior to the Privy Council decision in this matter, the cause of action was referred to as
knowing assistance. Later, the word ‘knowing’ was removed as it was a source of confusion and
which must be avoided, as indicated by Lord Nicholls.
Royal Brunei Airlines, called Royal Brunei in 1986, appointed the Borneo Leisure Travel
Sdn Bhd as its agent. The role was to reserve passenger flights and freight transportation around
Sabah and Sarawak in Malaysia. Mr Tan was Managing Director and Principal Shareholder and
was responsible for the management of Borneo Leisure Travel. The travel company was
2S. J. Bailey, 'Equity—Fiduciary Powers—Breach Of Trust—Equitable Defences' (2020) 20 The Cambridge Law
Journal.
3David Salmons, 'Dishonest Assistance And Accessory Liability' (2020) 80 The Modern Law Review.

receiving the money in respect of Royal Brunei and it was agreed that the cash would be held in
trust in a separate account until it was passed over. However, Borneo Travel Leisure, under the
knowledge and assistance of its Managing Director, Mr Tan, deposited the amount agreed to by
the trust into its current account. In fact, the money went to the ordinary current account of its
bank which was ultimately used for business purposes. The Borneo Leisure Travel failed to pay
the agreed money which need to be held in trust account on time. Furthermore, the contract was
cancelled and Borneo Leisure Travel went bankrupt. The Royal Brunei claimed his money from
the managing director, Mr Tan. The issue involved is whether Royal Brunei can claim the money
agreed for the trust, back from Mr Tan due to his assistance of knowledge in breach of fiduciary/
trustee duties and the knowing receipt of trust property? Has any dishonest or fraudulent concept
been established by Borneo Leisure Travel4?
At the October 1993 trial, Chief Justice Dato Sir Denys Roberts initially rejected the
airline's claim that Mr. Tan was orally guaranteeing payment of money. Further the justice also
rejected the claim against Mr Tan, that he may have diverted the money for his own use. The
claim making Mr Tan liable as constructive trustee was supported by Chief Justice. Mr Tan was
having the knowledge of money being used by Borneo for its ordinary business purposes, which
is sufficient to make him liable in the case. However, the stranger is held liable when he/ she
assists in the use of property in a way not defined by the trust. In this case, the Court of Appeal
allowed the appeal of Mr Tan and it was held that neither the company is guilty of dishonest or
fraudulent act nor its managing director.
Later, the case was appealed before the Privy Council which held that, it is the matter of
assistance to dishonest or fraudulent state of mind leading to breach of trust. Also dishonesty is
the base for making person liable for the act of dishonest assistance, regardless of the state of
mind of the primary trustee if the act done is in a dishonest manner.
Charitable purpose is the Relief of Poverty
The organization, in order to be a charitable organization in England and Wales, has to have
charitable goals that are in the public interest5. The Charities Act, 2006 came into force on April
1, 2008 as part of the public interest requirement. According to the Act, the Charity Commission
4Joanna Gray, 'Defining Dishonesty: A Culture Clash Of Law And Business Royal Brunei Airlines SDN BHD V
Tan' (2020) 5 Journal of Financial Regulation and Compliance.
5 S. Moerman, 'Non-Charitable Purpose Trusts' (2020) 6 Trusts & Trustees.

issued statutory guidelines and further analysis of the Public Interest Requirement Act. The law
emphasizes the following points which have been introduced into the new legislation. Firstly, the
requirement of trust who aims to have objectives for the relief of poverty, advancement of
education, religion in order to show that there exists a public benefit, as per Section 3 (2) of the
Act. Secondly, the Cases related to poor relationships and staff and lastly the impact of the new
law on fees charged to charities.
Lord McNaughten states that the above requirements are prima facie charitable in nature. No
specific definition of poverty exists to the extent that the resulting problems are
multidimensional and cumulative. The problem of poverty concerns not only individuals, but
communities as well. It may have a short- or long-term effect. Historically, courts have defined
poverty as either financial hardship or lack of material things. For a charity in England and
Wakes people in poverty is intended for households living with 60 percent of income which has
decreased unacceptably. It also includes individuals who, after working hard, remain in that
category and are eligible for assistance from an anti-poverty charity, regardless of their eligibility
for government benefits.
The term "financial hardship" is sometimes used interchangeably with the term "poverty" and
therefore also incorporates the same requirement as poverty for the charities concerned. The
charitable organization is qualified to assist people in need due to financial difficulties.
Moreover, all those in need due to financial difficulties are not qualified as poor, but they are
nonetheless charitable to alleviate financial difficulties. In most cases, the Charity Commission
deals equally with the alleviation of poverty and the alleviation of financial difficulties. It is
therefore probable that it is charitable to relieve a person who is unable to provide the resources
and basic needs in the short or long term6. For example, a person who owns a home may be rich
in his or her property, but his or her insufficient income could lead to temporary financial
difficulties.
There are other examples of ways in which charities could be able to alleviate poverty are: by
means of financial grants, supplying items like food, fuel, furniture, clothing and others, payment
for services such as reparations, electricity, money laundering and other public services, funding
6Mary Synge, 'Independent Schools Council V Charity Commission For England And Wales [2011] UKUT 421
(TCC)' (2020) 75 The Modern Law Review.

for related expenses that will help the individual make a living and training fund for maintaining
quality of life.
Financial assistance to people in need is not just a relief from poverty, but it is a complex
issue that depends on socio-economic factors. According to the Charity Commission, charities
are designed to prevent or mitigate poverty by addressing both causes: poverty prevention and
the consequences of poverty. “People living in poverty” does not mean that people lack basic
needs or are extremely poor, but it also includes those who are unable to meet their basic needs
without assistance. The courts have avoided setting poverty standards, even though they may
have said that in some cases. Thus, the term in ‘relief of poverty’ refers to people who lack basic
necessity or quasi- necessity, which for the majority of the population is seen as modest.
The Ré Compton ruling does not apply to poverty relief trusts. In Re Clarke [1923], a
donation that facilitates a nursing home for a person in need was regarded as a charitable
donation. However, a gift to the “working classes” does not necessarily mean poverty as in Re
Saunders' Will Trust [1954]. Additionally in the case of Re Gwyon [1930], where a trust
provided free pants to boys who are residents of Farnham. It was not regarded as charitable, there
was no restriction to the effect that the boys were poor and should be poor.
In case of Her Majesty’s Attorney- General V the Charity Commission for England and
Wales [2012], the issue has been raised with respect to whether charities aims to support relief of
poverty. These beneficiaries are eligible for charitable purposes through family connections,
joint employment or membership status. Moreover, they aimed at reducing poverty among small
groups of people. Further it was submitted on behalf of the Attorney- General that, though public
benefit related presumption are abolished by Subsection 3 (2) of the 2006 Act, which have no
impact on the poverty relief trust, as the charitable purpose has never relied on the presumption.
The arguments clearly state that, to be charitable, the trust must be established in the public
interest. In response, the Charity Commission argued that relief for poverty was no longer
necessary in the past for the public good and that this trust is no longer considered a charity.
Later, the Honour concluded that the requirement ‘relief of poverty’ is both charitable and for the
public good7.
7 Katharine Davies, Susan Farran and Susan Farran, Equity & Trusts (2020).

Secret Trust and its Necessary Elements
The fully secret trust leads to a situation where on face of the will testator shows that the
money will pass to the beneficiary who will take it absolutely, but in fact is a trustee for someone
else. In secret trust, the will is public and can be seen by others once the testator dies while the
rest of terms related to trust are mentioned in separate document which is kept as private. On the
other hand, half- secret trust arises in case where testator dies and passes the property in the
name which he/ she expresses in the will as his/ her trustee. Thus, it makes clear that person is
not qualified to absolutely inherit the property.
The main reason behind the formation of secret trust is that it keep the motive of testator as
secret in respect of disposal of property after the death. The will is considered as public
document which can be seen not only by family members but also by the others, as they gets the
knowledge of who receives what. The secret trust is the ultimate source if the testator does not
want to disclose its terms to others. The testator may simply pass the property to whom he/ she
has already instructed about such disposal of property. The evidence in order to prove the
existence of trust can be orally or in written form. Further such evidence must be effective in
showing the intention of testator in creating a trust which is causing binding effect on the
beneficiary under the will, to fulfil the wishes of testator after his/ her death.
The rules of half- secret trusts is similar to that of fully secret trust except one significant
aspect. The trusts formed under the fully secret trust is required to be communicated at any time
but it must be before the death of testator. Whereas, in case of half- secret trust, it need to be
communicated before or at any time the will is formed. Further the secret trust is the suitable
example for the maxim “the equity will not permit the use of statute as a cloak for fraud”. The
rationale of the half- secret trusts are evolved from the modern cases where they must precede
for the execution of will and the inconsistency with the will makes the trust invalid. Therefore,
the Will Act 1837 does not comply for the modern cases involving secret and half- secret trusts8.
Facts of the Case: In case of Brightman J in Ottaway v Norman [1972] the possibility of
floating trust arises. The Floating trust allows the co- owners to entrust their beneficial interest in
the trust which changes over the period of time with each of their contribution. In this case, the
testator passes his bungalow, furniture and the monetary amount of £1500 to Miss Hodges, his
8'Trusts. Removal Of Trustees. Refusal To Carry Out Testamentary Directions. Secret Profits. Mingling Trust Funds'
(2020) 6 Virginia Law Review.

servant (the primary donee). To which Miss Hodges agreed orally that she would pass the
bungalow and the remaining amount of money to the claimant son and testator’s daughter- in-
law (the secondary donee). Later, on the death of testator Miss Hodges altered her will and failed
to leave the bungalow and remaining amount as agreed in the will. Instead, she left the property
to Mr and Mrs Norman according to her own will. After her death the claimant brought the cause
of action against Miss Hodges’s executors, claiming to be entitled with the property under the
rule of secret trust. The issue involved is whether the initial trust formulated is failed or survived.
It was held by the court that, the bungalow was on a valid secret trust need to be passed to
the claimants as the intention of his servant was known to testator, Mr Ottaway. Further it had
been kept in suspense during the lifetime of Miss Hodges (primary donee). The court also held
that it is immaterial to consider whether these elements exists before or after the will of the
testator.
The necessary elements in order to prove the existence of secret trusts are, firstly the
Intention where the testator must intend the subject to the primary donee with mandatory
obligation to hold the trust for the benefit of the secondary donee. Also it is required to provide
with the sufficient certainty of such intention. Secondly, is the Communication where proper and
effective communication of the testator’s intention is required to the primary donee9. Further the
communication must be in respect of both the facts and the terms of the trust and need to be
communicated before the death of testator. Lastly, is the Acceptance in which there must be the
intention of the trustee to hold on the trust. Thus, the acceptance of obligation made by the
trustee can be either expressly or impliedly.
CONCLUSION
The above essay concludes the term and issue related to the dishonest assistance along with
the case study Royal Brunei Airlines v tan [1995], to properly understand the meaning and its
elements. Further the essay comprises the brief on the relief of poverty as requirement for
9'Trusts. Beneficiary Under A Spendthrift Trust May Assign His Interest When He Furnished Consideration For The
Trust' (2020) 37 Virginia Law Review.

charitable purpose and for public benefit accompanied by the leading case laws. At last, the
essay discussed the secret trusts with the help of case study Brightman J in Ottaway v Norman
[1972] and the necessary elements to prove the existence of the secret trust.
REFERNCES
Books and Journals
David Salmons, 'Dishonest Assistance And Accessory Liability' (2020) 80 The Modern Law
Review.

'Equity. Reformation. Refusal To Reform Mistake In Voluntary Trust Deed In Favor Of
Beneficiary' (2020) 26 Columbia Law Review.
Joanna Gray, 'Defining Dishonesty: A Culture Clash Of Law And Business Royal Brunei
Airlines SDN BHD V Tan' (2020) 5 Journal of Financial Regulation and Compliance.
Katharine Davies, Susan Farran and Susan Farran, Equity & Trusts (2020).
Mary Synge, 'Independent Schools Council V Charity Commission For England And Wales
[2011] UKUT 421 (TCC)' (2020) 75 The Modern Law Review.
S. J. Bailey, 'Equity—Fiduciary Powers—Breach Of Trust—Equitable Defences' (2020) 20 The
Cambridge Law Journal.
S. Moerman, 'Non-Charitable Purpose Trusts' (2020) 6 Trusts & Trustees.
'Trusts. Beneficiary Under A Spendthrift Trust May Assign His Interest When He Furnished
Consideration For The Trust' (2020) 37 Virginia Law Review.
'Trusts. Removal Of Trustees. Refusal To Carry Out Testamentary Directions. Secret Profits.
Mingling Trust Funds' (2020) 6 Virginia Law Review.